BENEFITS OF RISK DATA AGGREGATION #
According to the Basel Committee, risk data aggregation means “defining, gathering and processing risk data according to the bank’s risk reporting requirements to enable the bank to measure its performance against its risk tolerance/ appetite.”
- An increased ability to anticipate problems.
- In times of financial stress, effective risk data aggregation enhances a bank’s ability to identify routes to return to financial health.
- Improved resolvability in the event of bank stress or failure.
- By strengthening a bank’s risk function, the bank is better able to make strategic decisions, increase efficiency, reduce the chance of loss, and ultimately increase profitability.
PRINCIPLE 1- GOVERNANCE #
According to the committee, “a bank’s risk data aggregation capabilities and risk reporting practices should be subject to strong governance arrangements consistent with the other principles and guidance established by the Basel Committee.”
PRINCIPLE 2– DATA ARCHITECTURE & IT INFRASTRUCTURE #
According to the committee, “a bank should design, build and maintain data architecture and IT infrastructure which fully supports its risk data aggregation capabilities and risk reporting practices not only in normal times but also during times of stress or crisis, while still meeting the other Principles.”
RISK DATA AGGREGATION CAPABILITIES #
PRINCIPLE 3— ACCURACY & INTEGRITY
According to the committee, “a bank should be able to generate accurate and reliable risk data to meet normal and stress/crisis reporting accuracy requirements. Data should be aggregated on a largely automated basis so as to minimize the probability of errors.”
PRINCIPLE 4 —COMPLETENESS
According to the committee, “a bank should be able to capture and aggregate all material risk data across the banking group. Data should be available by business line, legal entity, asset type, industry, region and other groupings, as relevant for the risk in question, that permit identifying and reporting risk exposures, concentrations and emerging risks.”
PRINCIPLE 5 —TIMELINESS
According to the committee, “a bank should be able to generate aggregate and up-to-date risk data in a timely manner while also meeting the principles relating to accuracy and integrity, completeness and adaptability. The precise timing will depend upon the nature and potential volatility of the risk being measured as well as its criticality to the overall risk profile of the bank. The precise timing will also depend on
PRINCIPLE 6 — ADAPTABILITY
According to the committee, “a bank should be able to generate aggregate risk data to meet a broad range of on-demand, ad hoc risk management reporting requests, including requests during stress/crisis situations, requests due to changing internal needs and requests to meet supervisory queries.”
EFFECTIVE RISK REPORTING PRACTICES #
PRINCIPLE 7 — ACCURACY
According to the committee, “risk management reports should accurately and precisely convey aggregated risk data and reflect risk in an exact manner. Reports should be reconciled and validated.”
PRINCIPLE 8 — COMPREHENSIVENESS
According to the committee “risk management reports should cover all material risk areas within the organization. The depth and scope of these reports should be consistent with the size and complexity of the bank’s operations and risk profile, as well as the requirements of the recipients.”
PRINCIPLE 9 — CLARITY & USEFULLNESS
According to the committee “risk management reports should communicate information in a clear & concise manner. Reports should be easy to understand yet comprehensive enough to facilitate informed decision-making. Reports should include meaningful information tailored to the needs of the recipients.”
PRINCIPLE 10 — FREQUENCY
According to the committee, “the board and senior management (or other recipients as appropriate) should set the frequency of risk management report production and distribution. Frequency requirements should reflect the needs of the recipients, the nature of the risks reported, and the speed at which the risks can change, as well as the importance of reports in contributing to sound risk management and effective and efficient decision making across the bank. The frequency of reports should be increased during times of stress/crisis.”
PRINCIPLE 11 — DISTRIBUTION
According to the committee, “risk management reports should be distributed to the relevant parties while ensuring confidentiality is maintained.”