Will financial institutions be able to respond to new challenges of risk data aggregation, reporting and record-keeping?

Peter J. Green, Partner of Morrison & Foerster LLP, opened the four-panellist webinar organized by GARP on July 22, 2014, to discuss new risk data aggregation, risk reporting and recordkeeping principles. He indicated that the recent financial crisis had caused regulators to see many gaps in risk reporting and aggregation due to deficiencies in banks’ IT and data architecture.

The Financial Stability Board (FSB) gave a mandate to the Basel Committee on Banking Supervision (BCBS) “to develop principles for effective risk data aggregation and risk reporting,” said Green, as well as develop a common data template for global systemically important banks (GSIBs) and a Legal Entity Identifier (LEI) system for easy identification of counterparties.

Green noted that although the G20 meeting held in Pittsburgh in 2009 mandated much greater transparency in the reporting of relevant financial data, the G20 and FSB principles “are not directly binding on market participants so they need to be implemented into national legislation.”

The BCBS issued a set of principles on risk data aggregation and reporting in January 2013, which Green summarized. In December 2013, the BCBS progress report took stock of the movement toward compliance (based on self-reported survey results by GSIBs).  Over 80% of banks believed they were ready with governance arrangements for risk data aggregation. However, less than 50% believed they were ready with data architecture and IT infrastructure.

Green gave an overview of relevant EU legislation, such as the European Market Infrastructure Regulation (EMIR) and amended Markets in Financial Instruments Regulation and new Markets in Financial Instruments Regulation (MiFID II / MiFIR). EMIR includes reporting and recordkeeping requirements for derivative transactions whereas MiFID II / MiFIR focus on transparency. [Ed. Note: details appear on slides 20-26 of the presentation whose link is given below.]

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“Most key ‘level 1’ legislation is now in place but a considerable amount of ‘level 2’ implementing legislation and technical standards remain outstanding,” Green noted.

The Legal Entity Identifier (LEI) system will soon be in place. In June 2012 the FSB published a paper on “A Global Legal Identifier for Financial Markets” on assigning a unique worldwide alphanumeric string for every transaction counterparty. “A number of entities, in conjunction with requirement of national authorities, have started to use LEI-like identifiers, or ‘pre LEIs,’ to satisfy local reporting requirements,” said Green.

In response to a question from the audience about the overview of changes for emerging markets, Green said that the primary emphasis is currently G-SIBs, but smaller institutions can expect the principles to become applicable to them in the next stage of implementation.

Green gave a useful, information-packed overview of where things stand with respect to risk data aggregation and reporting outside of the US. ª

Click here to view the webinar. Green’s portions are slides 7-8 and 17-28.

Click here to read about the second presentation.