The Basel IV Smorgasbord: Plenty of Choices…and Potential for Indigestion

Where are you on the Basel IV implementation journey?

The impending Basel IV reforms offer Financial Institutions (FIs) plenty of choices on which to focus the resources of their risk and compliance programs, but few easy solutions. Large exposures, SA-CCR, full new standardized runs, stringent geographical timelines, and complex data and reporting needs are a few things on the menu.

There is a lot to chew on, and FIs are asking themselves how they can manage:

  • Increased data-driven overlap and granularity
  • The need for greater finance and risk integration
  • Tighter regulatory chains
  • Reduction of overall IRB benefits
  • Margin pressures
  • Increased regulatory scrutiny

While contending with the indigestion caused by an abundance of requirements, many FIs are pondering the most efficient ways to simplify their Basel IV implementations. With FIs’ regulatory budgets mushrooming, are there efficiency and resource savings to mitigate anticipated cost overruns? As Basel expansion puts pressure on the cost of doing business, achieving Risk Adjusted Return on Capital (RAROC) becomes more challenging, and optimizing Risk Weighted Assets (RWA) more critical. Manual and siloed processes bog down submissions and put pressure on resources. Noncompliance? Not an option.

What if you could have your cake and digest it too?

FIs need complete, relevant, and accurate risk data to calculate their requisite RWA, capital deductions and ratios. And the complexity of new Basel provisions has an effect upstream – necessitating better data management and flexible technology processes to address the challenge. As regulators continue to become more focused on the accuracy of returns, data must be consistent, accessible and trustworthy – in order to optimize capital efficiency and meet stringent deadlines.

FIs must think strategically about how to manage their Basel challenges when assessing this array of requirements. A technology-driven approach for regulatory and risk data management can be a catalyst not only for addressing change, but also for driving opportunities. In fact, these new regulatory requirements offer a chance for FIs to rethink both their portfolio of businesses and their individual business models. Hence, understanding interdependencies and trade-offs among business segments – and under different regulatory constraints – is crucial.

A few potential wins to consider:

  • Develop upstream simplicity and non-repetitive processes
  • Create budget synergies and unified data models
  • Streamline business models
  • Improve RWA optimisation and calculation approaches
  • Revamp technology, software, and model execution
  • Invest in transparent, dynamic data-lineage
  • Eliminate black boxes

Invite us to the table, we’d like to share the smorgasbord with you.

To read an insightful piece about managing the disruption of Basel-driven regulatory changes, please visit: “Navigating Turbulent Waters”

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