Michael Shashoua: Basel Didn’t Start the Fire

The Basel Committee on Banking Supervision (BCBS), with its BCBS 239 “Principles for effective risk data aggregation and risk reporting,” has set a Jan. 1, 2016, deadline for compliance with its prescription for tracking risk through collection and management of relevant data.

BCBS 239 sets out 14 principles, several of which could be described as simple ideals, such as completeness, timeliness, adaptability, accuracy, being comprehensive in nature, clarity, usefulness and higher frequency. It is also effectively a corollary to the committee’s Basel III capital adequacy regulation, which mandates that firms have resources to cover their risk, though crucially it does not prescribe how to determine or monitor that risk.

A discussion in Inside Reference Data’s May 15 webcast, sponsored by S&P Capital IQ, indicated that with risk data aggregation, the industry appears to be making progress at managing multiple data types and reacting to regulatory mandates like those in BCBS 239. Still, there may be some pushback against the 2016 deadline, as experienced chief data officer John Bottega, now a senior advisor for the EDM Council, said in a May 14 webcast on compliance data issues, run by data management automation provider Collibra and consultancy Element 22. “It won’t happen by 2016,” he said. “It will take some time.”

Bottega correctly notes that the goals set out in BCBS 239 are vague. “It’s hard to pinpoint because the specifics of what’s considered adherence or what constitutes adherence, is still up for grabs,” he said. “There are still a lot of conversations going.”

The Symptom, Not the Cure
Still, others see BCBS 239 as acknowledging that risk data aggregation efforts have hit a tipping point. “A lot of firms are in the process of working on data management and governance,” said Peter Serenita, group chief data officer at HSBC, during the May 14 webcast. “Even before BCBS 239, data value had reached a level higher than ever before in organizations. BCBS 239 is a reinforcement of what needed to be done and was being done in a lot of places.”

Those who are unprepared to follow BCBS 239 standards shouldn’t count on a delay by its authors before 2016 arrives.

The most important element of risk data aggregation may be “harmonization,” which Bottega says is the goal that regulators most want to see. “With that, you can start to apply metrics like adherence to those standards and metadata,” he said. “The BCBS is not being overly prescriptive but they expect firms to have common metadata and taxonomy, and ensure all new development adheres to that.”

The Value of BCBS 239
Even if regulators or regulations aren’t really the driving force for risk data aggregation, regulators do understand it well, Bottega says. He adds that BCBS 239 and its mandate for financial institutions to conduct risk data aggregation under certain standards and principles is a necessity. “Most large institutions are sitting on a ton of data that’s so informative to their business,” he said. “If they don’t improve their discipline, they can’t survive.”

UBS is one major firm that has taken BCBS 239 as an incentive, as Simon Feddo, director and head of change for legal entity, client and account in UBS’ London office, said in Inside Reference Data’s May 15 webcast. “We’re doing a lot of work figuring out how our overarching governance and infrastructure works, and ordering our current risk data aggregation capabilities,” he said. “We’re taking a very close look at our risk reporting practices.”

If BCBS 239 is simply ratifying improvements that the industry already has underway, it doesn’t seem logical that there would be as much pushback by the industry. And where standards and guidelines like same-day trade settlement have languished for years, more recent regulatory mandates, namely the US Fatca tax withholding rules, only had key deadlines delayed slightly—in terms of weeks or months, rather than years. Therefore, those who are unprepared to follow BCBS 239 standards shouldn’t count on a delay by its authors before 2016 arrives.