Golden Copy: Risk Data Nuances ... And Déjà Vu

A new development in the Basel Committee on Banking Supervision (BCBS) risk capital calculation and measurement standards makes me wonder if it could be beneficial for addressing risk data management issues considered at length in a feature in the March issue of Inside Reference Data.

The BCBS has ostensibly simplified the measurement approach for its risk capital framework, something it began thinking about in 2014. The committee recentered its measurement around a financial statement-based assessment of operational risk, compared to past operational figures. At the same time, it eliminated a duplicate standard as well as the advanced measurement approach it had offered as an option.

The data officers who shared their challenges in the feature story are contending with data that can arrive with different characteristics, using different standards, depending on whether it comes from a firm's finance or risk side. Perhaps they should design and apply a risk measurement model that is common to both departments, and a prescription for such an approach -- or at least a good model for what to do -- could be found in the BCBS's latest work.

Some of these executives see risk data management as a data governance issue. Mizuho Securities' Marc Alvarez says his firm uses a two-part strategy to improve the governance of risk data -- first, educating management about data, and second, getting more quantitative risk data as a foundation. Having more granular data available to feed into a single standard measurement approach can only produce a more consistent and accurate result, but the key is making sure that approach stays the same on both the finance and risk sides, and doesn't stray by making exceptions for certain pieces of data.

Considering other stories in this issue finds us going from the sublime (those fine distinctions concerning risk measurement and modeling methods) to the ridiculous (the prospect of the New York Stock Exchange's (NYSE) parent, the Intercontinental Exchange, taking a stab at acquiring the London Stock Exchange (LSE), at the last minute, while the LSE appears to be more amenable to the merger offer already on the table from the Deutsche Börse. NYSE's management ought to study what happened about 10 years ago, when the US-based Nasdaq followed Australian bank Macquarie's unsuccessful bid for the LSE with a failed bid of its own. Although Deutsche Börse took repeated shots at acquiring the LSE in the early 2000s, the current attempt at a merger finds the German exchange on an inside track. The global exchange merger game can give you repeated cases of déjà vu.

Speaking of déjà vu, another piece in this issue has some echoes of the past. "London's Fintech Start-Ups Mature" covers the most recent round of financial technology start-up companies, whose missions include data management advances. We may have caught this wave on the back end, but it appears to be morphing into a specific "regtech" (regulatory technology) strain, because entries that were too broad have washed out.