BCBS 239: Time for banks to embrace the shadow risk platform

AxiomSL | Solvency II
German

September 16, 2015 – By Ralf Menegatti, Product Owner, EMEA

With the implementation of the Basel Committee on Banking Supervision’s (BCBS) 239 principles fast approaching, the world’s largest banks are adapting their systems to support higher standards of risk management than ever before. As they do so, many are realizing that the real-time capabilities demanded by BCBS 239 will require them to rethink their infrastructure.

The principles of BCBS 239 specify that, from January 2016, global systemically important banks (G-SIBs) must be able to report complete, accurate and fully integrated risk data in a timely manner. The emphasis on the timeliness of the data is significant, as it means banks will need to be able to analyze their risk exposures almost in real time and, in most cases, on an intraday basis. This is a major change.

At present banks use the data in their downstream systems to produce ex-post reports on their risk exposures. As part of BCBS 239, they will need to have real-time access to the data in their upstream systems in order to create up-to-the-minute reports on their risk exposures and to analyze the impact of different scenarios. For example, if a bank buys a large number of derivatives, it will need to be able to do real-time analysis of the likelihood that such an investment will show up as a high risk when the correct leverage data is applied.

Banks realize they will really struggle to do this type of real-time risk analysis if they rely on data warehouses because these systems are usually updated overnight as part of a batch process. Data warehouses are also poorly suited to BCBS 239 because they require the use of extract, transform, load (ETL) tools. These rarely provide business users with data lineage and, when they do, it is only after great effort.

Instead of relying on their incumbent data warehouses, banks should consider implementing a shadow risk monitoring platform to manage the requirements of BCBS 239. They should extract key data (such as pricing, market, accounting and planning data) from their banking production systems on an intraday basis and transfer it into the shadow platform. Once there, they can measure the data against benchmarks and use it to provide a risk-related view at any point in their production process. They will also be able to use the data to run simulations and analyze the impact of different risk scenarios, such as the failure of a counterparty.

Data warehouses will always have an important role to play in banks’ operations, including the production of client and tax reports. However, when it comes to BCBS 239 and real-time risk analysis, it is time for banks to embrace the idea of the shadow risk monitoring platform.