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How do you monitor your Basel III compliance?


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How do you monitor your Basel III compliance?

  1. 1. How do you monitor your Basel III Compliance? Risk and Regulatory Solutions Building Smarter Companies November 2012
  2. 2. Basel III – Risk Reporting “Many banks lacked the ability to aggregate risk exposures and Bank of International Settlement - concentrations quickly A Key issue from the 2007 crisis: and accurately at the bank group level, across business lines and between legal entities” Basel Committee on Banking Supervision “Principals for effective data Improving banks’ ability aggregation and risk reporting.” to aggregate risk data Compliance is required for the will improve their large banks (G-SIBs) start 2013 – resolvability. all other financial institutions around the world by 2016Source: The Bank of International Settlements: Basel Committee on Banking Supervision; Draft – Principals for effective risk data aggregationand risk reporting– June 2012 – out for comments 2
  3. 3. Risk Reporting Requirements1. Governance2. Data Architecture and IT infrastructure for risk aggregation and risk reporting3. Accuracy and Integrity of data 1. A bank should merge to a single authoritative source 2. A bank should have a dictionary of terms4. Completeness5. Timeliness6. Adaptability 1. Data aggregations that are flexible and enable risk to be aggregated 2. Capabilities for data customization (“dashboards” and flash reports) 3. Capabilities to incorporate new developments and regulatory changes7. Accuracy8. Comprehensiveness9. Clarity10.Frequency11.Distribution12.Review – transparency13.Remedial actions and supervisory methods14.Home/Host cooperationSource: The Bank of International Settlements: Basel Committee on Banking Supervision; Draft – Principals for effective risk data aggregationand risk reporting– June 2012 – out for comments 3
  4. 4. Operational Risk Activity Reporting Risk Dollars Activity Reporting • Loss or damage • Legal liability • Restitution • Write down • Regulatory action 5 70 19 7 Risk Dollars x Risk Level Reporting = Reporting Variations 5 x 70 = 350 Reporting Variations 4
  5. 5. Operational Risk Business Reporting Business Reporting 40 + 19 8 4 350 Reporting Variations x 40 Activity Groups = 14,000 Reporting Variations Product Reporting for 100 products x 14,000 Reporting Variations = 5 5
  6. 6. Operational Risk - Highest Losses Business Reporting Activity Reporting • Corporate Finance • Business disruption and • Investment system failures Banking • Trading and Sales • Retail Banking • Execution, 37% of Loss • Banking Delivery & Process • Asset • Commercial Banking • Internal Fraud management • Payment and • Retail Brokerage settlements • External Fraud 36% of Loss • Agency serves • Employment Practices and Workplace Safety • Etc. • Clients, Products & Business Practices • Damage to Physical Assets Retail Banking 60% of lossSource: Operational Risk data eXchange (ORX) – Operational Risk Report 6
  7. 7. Operational Risk – External Fraud 7
  8. 8. Risk is managed not eliminated Operational Risk Balance Key attributes for Key attributes for customer Bank Robbers satisfaction Easy access to freeway Easy access to freeway Longer hours Longer hours Clustered banks with standard Clustered banks with standard designs designs Cash available at the teller Cash available at the teller People shot – Not good People shot – Not good 8
  9. 9. External Fraud Mitigation Dye-Stained Bills At Strip Club Lead To Bank Robbery Arrest 9
  10. 10. Summary – Measuring and Reporting Risk• A pragmatic approach to detection, consistent data definitions, simpler output and ultimately requiring less data• The simpler approach allows risks to be transparent & understood and can therefore allows for better understanding at the first line of defense• Operational limits based on history, trends, current capability constraints or the risk appetite of the financial institution• Enable the comparison of areas/franchises from an operational risk perspective and provide a basis for operational risk capital management• Using data comparison, provides insight to the firm on the interrelationships of business characteristics and business entities to operational risk characteristics 10
  11. 11. Next Steps• Determine where your Company stands today with respect to measuring and reporting Operational Risk • What’s measured • How are the measurements defined• Business unit measurements• What are the current operational reports• Determine the gap to best practice and to regulation requirements• Multi generational action plan• Mitigate risk and save money 11
  12. 12. Questions?Contact 12