The European Central Bank (ECB) launched a public consultation on its Guide on effective risk data aggregation and risk reporting. The Guide outlines prerequisites for effective risk data aggregation and risk reporting (RDARR) to assist banks in strengthening their capabilities, building on good practices observed in the industry.
It intends to specify and reinforce supervisory expectations in this field, taking into account the Basel Committee on Banking Supervision’s Principles for effective risk data aggregation and risk reporting (BCBS 239). It complements and does not replace the guidance already provided since 2016 in public communications and in institution-specific supervisory activities.
Adequate capabilities in this area are still the exception, and banks have to improve their risk data aggregation frameworks, also in light of the BCBS principles. Banks are expected to step up and conclude their efforts to improve their governance framework and data management process in a timely manner.
The Guide is part of a wider strategy intended to ensure that supervised banks ultimately achieve substantial progress in remedying their identified structural shortcomings in risk data aggregation.
ECB Banking Supervision has identified important areas for robust governance and effective processes to identify, monitor and report risks. In the Guide, seven key areas have been singled out: the responsibility of a bank’s management body; the scope of application of the data governance framework; key roles and responsibilities for data governance; the implementation of a group-wide integrated data architecture; the effectiveness of data quality controls; the timeliness of internal risk reporting; and implementation programs.
The effective management and aggregation of risk-related data is essential for banks’ sound decision-making and strong risk governance. This applies to data used to steer and manage banks, both strategically and operationally, as well as data used for risk management and financial and supervisory reporting.
The essential capabilities and practices identified will assist banks in their efforts to better identify and manage group-wide risk concentrations on the basis of quality data, whether it is credit, market or third-party related. This has proved to be critical for effective risk management, not just during the 2008 financial crisis but also more recently during the coronavirus (COVID-19) pandemic and other crisis situations.