Firms Failing on Risk Management Data Requirements

Financial institutions are currently slow to respond to regulators’ demand for better risk data, according to researchby JWG, an independent financial regulatory think-tank. The report, ‘Clearing the risk MI bar?’, is based on a survey of 20 risk, data and finance professionals in 16 global financial institutions, as well as discussions with international trade associations, regulators and technology vendors.

The second phase of the research has found that, while regulators are heavily scrutinising financial institutions’ risk management information (MI), firms perceive that the drivers for risk data improvement are primarily internal and the associated benefits are not being tracked to the bottom line. As such, firms have been slow to respond to new regulatory data requirements, with the research finding that:

• All respondents believe that risk data is a pertinent issue, however the industry has been saying this for years.
• Only 15% of those questioned could strongly agree that risk MI improvement programmes have sufficient resources and personnel assigned.
• Seventy percent of respondents could not agree that there are adequate incentives in place for proper management of risk information management.
• Just 8% strongly agree that risk MI improvement is fully sponsored across their respective firms.
• Nearly 40% could not agree that there is full board-level awareness of risk MI issues and, of those that could agree, only 15% could do so strongly.

PJ Di Giammarino, chief executive officer (CEO) of JWG, said: “Although the bar may be set high, it is not in a firm’s best interest to wait to see if it lowers. Between increasing buffers and fines, regulatory consequences for ‘bad’ data will have a material effect on firms’ businesses. We cannot afford to ignore these challenges in 2011. Serious industry-wide discussion is required to determine the scenarios, use cases, operating procedures and standards that will define how to manage this difficult regulatory ‘high jump’.”

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