Manage your RiskWith the impact of the 2008 financial crisis still reverberating across the globe, the compliance, regulatory, and risk data landscapes for financial service providers have undergone staggering changes in recent years. According to the Basel Committee on Banking Supervision (BCBS), one of the most important lessons to be learned from the recent financial crisis is that banking IT systems are inadequate to support the management of financial risks.[1] This has led to the development of several new sets of regulations such as BCBS 239 and Basel III, which are aimed at improving risk management—specifically, the data systems that the  risk information is drawn from.

The Regulation

BCBS 239 outlines 14 major principles to improve effective risk data aggregation and reporting, grouped into four major areas: supervisory review, governance and infrastructure, risk reporting practices, and risk data aggregation. Each of the 14 principles is grouped under one of the areas below.

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Figure 1: BCBS 239 Major Principles[2]

In 2013, the BCBS initiated a review to measure the progress of a global list of systematically imported banks (G-SIBs) in implementing these principles. This review was in the form of a self-assessment, in which each participating bank measured its compliance with each principle on a scale of 1 to 4. The average rating across all 14 principles of BCBS 239 was 2.8, with the principles dealing with data architecture and IT infrastructure, accuracy and integrity, and adaptability receiving the lowest levels of compliance on average. To compound matters, G-SIBs must comply with all areas of BCBS 239 by June 2016. While BCBS 239 is only considered mandatory for the G-SIBs, the Bank for International Settlements (BIS) recommends that all major banks and financial service providers implement it.[3] This, in turn, is only one of the many new sets of regulations that the financial industry must contend with, and it is likely that as financial service providers and the markets they serve evolve, regulatory and compliance standards will as well. In addition, this says nothing of differing national and regional laws that global companies must face.

Systematic Integration

Although there has been a push in recent years for banking IT systems to move from silo-based architecture to a more integrated environment, many financial companies are having difficulty making such a transition successfully and on time. Facing both sets of challenges, these organizations tend to develop ad-hoc solutions for data management problems. This simply reduces the robustness of IT banking systems, though, resulting in more time and money spent fixing the system instead of leveraging it for its intended purpose.

The Issues

There are several key data management challenges that financial service providers must look to overcome. In today’s market, businesses must have high quality data and the flexibility and efficiency to react quickly and automatically to requests from regulatory bodies for risk data and reports. Too often analysts spend their time aggregating data from different sources, trying to reconcile inconsistent, duplicated, or incomplete data sets, or driving manual processes. By resolving key challenge areas, financial service providers can better focus on risk management and decision making.

The Solution

The ZEMA solution provides a comprehensive approach to data management by addressing all of the stages of data warehousing, from the initial gathering of information to validation, storage, metadata, analysis, visualization, and finally, integration with downstream systems.

ZEMA possesses tools that can ensure the accuracy and integrity, completeness, and timeliness of data (Principles 3, 4, and 5). ZEMA ensures that all incoming data meets requirements by comparing it to a set of user-defined conditions. If data fails to meet one of these tests, then the system provides notifications to the user. ZEMA also provides entitlement control, ensuring that all data is only accessed by those approved to do so. This helps build an auditable trail of data use.

In addition, ZEMA provides a wide range of data gathering and integration options to meet Principle 6, adaptability. Once data is stored in the central ZEMA database, it can be pushed to any downstream systems through a variety of methods, including web service calls, ZEMA APIs, and vendor-specific adapters.

ZEMA is an end-to-end solution that ensures businesses have the correct data for financial institutions, which equips users to focus on building the analytics and reports required to keep up with industry compliance and regulation standards. To learn more, book a complimentary ZEMA demo today at http://www.ze.com/book-a-demo/ .

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[1] Basel Committee on Banking Supervision, “Principles for Effective Risk Data Aggregation and Risk Reporting,” Bank for International Settlements, January 1, 2013, accessed September 29, 2014. http://www.bis.org/publ/bcbs239.pdf.

[2] Ibid.

[3] “Managing the Data Challenge in Banking,” KPMG International, June 9, 2014, accessed September 29, 2014, http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/regulatory-challenges/Documents/banking-managing-data-challenges-fs-v2.pdf.