BCBS 239 Requires Integration of Risk & Finance Organizations
The hot button for any Tier 1 or 2 financial services firm today is undoubtedly risk management and Regulatory Compliance. Within this space, there has been a significant increase in focus on management of data as it pertains to risk management. Granted a lot of this increased activity is related to BCBS 239, but it can be viewed as a natural evolution of focus in risk management from risk analytical engines and models to the basic building block, risk data. As we all know, the best models and model governance can yield the right results only if the right data is in place on the input side.
In line with the thought in my prior article on the need for more nimble "data insight" projects as compared to large multi-year "data infrastructure" projects, the above use case too demands a nimbler approach. On similar lines, most firms are in fact limiting their focus to data management within the risk management perimeter, focusing on data taxonomy, data dictionaries (including the lineage aspect), and comprehensive data governance, among other things. While it is important to focus on having ownership and control over risk data to start with, the opportunity to do a greater good will be lost if firms don't focus on using this exercise to bring the finance and risk management organizations closer.
Let us look at the rise in visibility of the risk management function from a broader perspective to help understand this. The only way to overcome the malaise in financial risk management is for the institutions to integrate risk management as part of their operational philosophy, and build risk-adjusted models in to everything including capital allocation, bonus determination and product strategy. If this needs to happen, it is imperative that the risk and finance functions work more closely -- and the starting point for this is the use of common data sources.
Focus on risk data
Taking a step back, let's look at the immediate regulatory mandate forcing organizations to re-look at risk data management, BCBS 239. BCBS 239 is more of a philosophical guideline around risk data management as against a prescriptive guideline. Most of the rules are guidelines and best practices around data management in the risk space, and all that they mandate is that organizations have a policy and operating model in place to ensure they have a proper "handle" on the data that feeds in to risk calculations. But if organizations can take a step back and look at the benefits of expanding the current exercise across both the finance and risk organizations, the benefits are significant. Apart from benefits to the capital allocation process, such a move could ease the move to make risk management more "mainstream" -- moving from a vigilance function to a decision enabling function in terms of driving geographic and product strategy, and driving compensations decisions within the organization.
There are multiple ways to move in this direction -- e.g., to have shared data across the risk and finance organizations, and one of them is having a strong foundational data model in place. There are also several robust risk and finance analytical platforms that focus on integrated analytics across the risk and finance functions, and insights across the customer profitability and risk management functions, among other things. Whichever approach is used, financial services organizations have the opportunity to achieve something bigger than just regulatory compliance. The benefits of having shared data and clean legal entity roll-ups across risk and finance is multi-fold, including better customer profitability analysis and hence more effective business strategy. This will eventually go a long way in significantly improving business plans to ensure that they create significant economic value, while meeting key risk containment guidelines.
Note: The views expressed in this article are my own, and do not necessarily reflect the views of Oracle.Promod Radhakrishnan is Head of Sales, Americas with Oracle's Financial Services Global Business Unit. As part of the sales leadership team for this specialized group focused on financial services clients, Promod manages and directs the development and implementation of ... View Full Bio