The need for a data centric regulatory risk assessment framework

The need for a data centric regulatory risk assessment framework

by Ramendra K. Sahoo, Director in PwC’s Advanced Risk Analytics.

The abundance of data, usage of smart devices and the demand for near real-time financial transactions has led to growing misuse of the available information [1]. As a result the Financial Stability Board (FSB) endorsed by G20 Leaders expect increased level of intensity and growing importance of effective supervision for the Financial Institutions.
One of the primary goals of such an effort is to establish an effective risk appetite framework, which is both actionable and measurable [2]. Similarly, both at firm level and C-suite level, there are efforts and new measures to address reputational risks and business ethics.

From a technical angle, whether it is Big Data or related new tools and techniques continue to make sufficient in-roads in terms of improving efficiency and automation. The traditional data collection, archival, checks and analytics needs are getting replaced with emerging techniques to address the volume, variety and velocity of data production and usage at a much faster pace. Contrary, as the banking regulators continue to demand increased independence and transparency, there is a growing gap between a framework in which data can be used for mass consumption, and a frame of reference, where data and underlying policies and procedures can be assessed to meet the regulatory needs from a risk and compliance standpoint.
As a result, any existing traditional data management framework with compartmental view for different business units and legal entities is no longer sufficient to address evolving risk management and regulatory requirements.

In a nutshell, the risk, finance and compliance functions of financial institutions are undergoing fundamental transformation, not only to address the demand for regulatory changes, but also how they can embrace new tools and techniques. This is primarily to make sure that the infrastructural and data management needs are compliant both from risk and regulatory standpoint. In post financial crisis world, the C-suite Executives [3], risk and compliance officers now seek better integration of regulatory and technical advances to take a control of their reputational risks and risk appetite, while enhancing their return on risk and compliance investments.

In summary, the C-Suite of the financial institutions consistently looks for data centric risk and regulatory assessment framework with the following embedded characteristics.

  • Consistent data metrics, comprehensive knowledge, risk vocabulary and reputation risk.
  • Strategic dialogue about risk, relying on data, underlying insight and foresight.
  • Data transparency with comprehensive decisions based on laser focused insights and foresight.
  • Broad holistic and integrated view of risk and finance through regulatory and compliance lenses.
  • Enhanced and objective predictions through right models and validations.
  • Transparency on everything: from every model to every metrics.
  • The use of sophisticated analytics with appetite for more and more granular data.References:
  1. Manyika J., Chui M., Brown B., Bughin J., Dobbs R., Roxburgh C., Byers A. H., Big data: The next frontier for innovation, competition, and productivity 
  2. Consultative Document: FSB Principles for an Effective Risk Appetite Framework
  3. Buehler K., Freeman A, Hulme R., Owning the right risks, Harvard Business Review, September 2008


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