IBS Journal February 2015
Risk on
It is all-encompassing, multi-layered, and increasingly needs to be real-time and embedded in the business: welcome to the new world of risk and compliance.
Risk management in all of its varied forms is taking up huge amounts of resources within banks at present and, of course, it is an ever-moving target. Banks are now typically taking a more holistic and all-embracing view of risk, reflecting the need to ‘prove’ compliance, rather than just produce numbers. That view might well span elements such as conduct risk, regulation risk, model risk, fraud, IT securi- ty, even an area such as human resources (where it is imperative that staff can read and understand internal and external rules, and be alerted when there are changes). There is also the question of time-
liness: What now needs to be real-time or near real-time, rather than relying on traditional batch processes? Is this really what the regulators are seeking or the business needs? Particularly with the amount of data in large trading banks, just what is technically feasible becomes an issue as well. The current lack of clarity in some
areas makes it difficult to plan and invest. While some of the regulations are relatively prescriptive and easy to interpret, leading to a fairly standard level of compliance,
others are far more qualitative. Of course, it is also impossible to
ignore the deluge of regulations, with the likes of Dodd-Frank, Basel III (requiring a higher quantity of capital and liquid assets) and the EU’s MiFID and EMIR vying for attention alongside the EBA’s Corep common regulatory reporting framework, Finrep for financial reporting, enhanced discipline regulations, recovery and resolution plan rules and so on. There is also, on the way, a fundamental review of the trading book. With regards to the latter, John Macdonald, IBM’s risk analytics and customer solutions director, says ‘the deadlines are not yet understood but it will have a big capital impact on many of our clients’. Particularly coming into view for
many banks, ahead of a 2016 deadline, and at the ‘qualitative’ end of the spectrum is the risk data aggregation and risk re- porting (BCBS 239) requirements from the Basel committee. This constitutes ‘every second conversation’, says Markit’s COO for enterprise software, Patrick McPhater. He cites one organisation that he has spoken to of late that has suggested an investment of €15-20 million to achieve compliance. Lack of clarity is an issue as there are phrases such as ‘strong govern- ance arrangements’ and a requirement that data should be aggregated on a ‘largely automated basis’, but without the regulators being any more specific than this.
‘No one is standing up and defining what real-time risk management is.’
Mikael Sorboen, BNP Paribas It is also impossible to ignore the
constant stream of eye-watering fines that banks are incurring, with a knock-on impact on their reputation. Of late, there have been the £2 billion fines incurred in mid-November by RBS, HSBC, UBS, JP Morgan Chase and Citibank from the UK’s FCA and US’s Commodity Futures Trading Commission (CFTC) for rigging the foreign exchange market.
42 © IBS Intelligence 2015
www.ibsintelligence.com
analysis: risk management
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