The financial crisis revealed the inadequacy of banks’ risk data systems, with institutions frequently unable to provide up-to-date reports on risks and exposures. This undermined confidence and led regulators to focus on the quality of risk data and supporting systems and processes.
Most banks do not aggregate, store and analyze data in a coordinated fashion. Consequently reports are often compiled manually at great expense, are inaccurate and/or incomplete, and arrive too late to influence trading and operations. It can take as long as 60 days to compile a group-wide set of risk figures.
Banks need to review and improve their risk IT infrastructures. Basel Pillar 2 provides guidance for strengthening risk data collection and internal risk reporting practices, calling for:
A streamlined risk IT architecture requires investment in systems for transmitting and reporting risk data. It also calls for greater standardization, common data models, integrated systems and, in some cases, data warehouses.
By consolidating risk data, banks can produce more insightful analyses that improve risk management and business judgment. With more up-to-date, accurate reports, organizations can adapt quickly to competitive threats and regulatory change, making compliance simpler and less challenging.
Improved data aggregation can also reduce capital requirements. For example; by capturing all collateral contracts, risk-weighted capital calculations become more realistic.
Renovating the risk IT infrastructure can be a significant expense for banks and requires fundamental organizational changes. However, it brings immense strategic benefits and should be a top management priority.
Director Financial Risk Management
KPMG in Australia
T: +61 2 9455 9596
KPMG in Germany
T: +49 69 9587-3403
KPMG in Germany
T: +49 69 9587 3988
Brian J. Hart
KPMG in the US
T: +1 212 954 3093
How can banks and insurers build better infrastructure strategy for legacy system renewal?