The principles of the Basle Committee’s BCBS 239, also known as PERDARR or Principles for Effective Risk Data Aggregation and Risk Reporting, are a well-known if not a well understood challenge in the banking industry. The investment to improve IT systems, data accuracy and integrity and reporting capability has been substantial. Apart from the backward-looking reporting aspects of BCBS 239, the regulators also “to develop forward-looking report capabilities,” as Paul McPhater, COO enterprise software at Markit put it in a recent Finextra blog. “This is designed to provide early warnings of any potential breaches of risk limits that may exceed the bank's risk tolerance or appetite. In short, supervisors expect risk management reports to enable banks to anticipate problems.”
But McPhater says that regulators are considering applying these same principles beyond the current risk remit into areas such as financial and operational processes as well. “That looks like a fairly unsubtle suggestion that [BCBS 239] will expand over time.”
McPhater adds that it isn’t yet clear what the ramifications are for banks if they fail to adhere to the standards, but “the principles do come with deadlines and they are approaching fast”.
Paul McPhater's blog on Finextra can be read by clicking here.