Recognize, Respond, and Report: Increase Your Risk Awareness

“At the request of a regulator, the bank is
suspending its previously announced capital distributions.”
Put out that statement and watch share
prices fall, incur the wrath of all your regulators,
and prepare to set aside even higher capital buffers
to compensate for now-suspect risk calculations.
Institutions providing unsatisfactory regulatory
capital reports may be subject to constraints to
capital activities, even in situations where reported
capital meets required minimum standards.
This is just one example of the direct cost of inadequate
risk and regulatory reporting processes.
This institution may have revealed its error, but there
are certainly other reporting errors that have gone
undisclosed or even undetected. There is just too
much data to analyze and too many calculations
to report to expect perfection, particularly given
the current state of data management and the data
reconciliation that is required to ensure trusted
data sources. Legacy core systems were developed
when batch processing was state of the art and
regulators were more patient. Your staff members
are doing the best they can to manage today’s
expectations with yesterday’s technology.
Banks know that this can’t continue. They also
recognize that a clean start – from core system
replacement to new general ledger and then Big
Data solutions – is the best way to improve risk
management and more efficiently comply with
regulatory requirements. It should come as no
surprise that enterprise risk reporting and a more
integrated approach to risk and finance is a priority
for more than 90% of banks.1
WHAT IT TAKES TO BE RISK AWARE
Being risk aware comprises three elements –
recognizing, responding, and reporting:
••Recognizing risks requires that banks trust what
the data reveals and can see that unexpected
or changed results are significant enough to
potentially impact its risk profile or business
results. Important components of recognition
are timeliness, accuracy, and effective means
of communication.
••Responding to newly recognized risks is the
responsibility of business leaders and risk executives.
Analysts can communicate results, and
they must do so effectively to ensure that the
new risks or opportunities they’ve recognized
do not go unheeded. This requires trusted data
sources, proven analytics, and dashboards to
provide businesspeople with the information they
need to make informed business decisions.
••Reporting out to regulators, shareholders, and
executives is the final phase. The same shared
data source used by business, risk, and finance
managers as the basis for reporting will simplify
(or eliminate) data reconciliation. Ad hoc reporting
capabilities provide the flexibility to adjust to
changing requirements. A trusted data model
means that industry-specific and jurisdictionspecific
definitions can be stored and accessed
to ensure reports are accurately completed.

By Juan Antonio Falcon Blasco