BCBS 239 can enhance buy-side data governance: Laying the foundation

Buy-side firms can enhance their data governance by using the principles outlined in the Bank for International Settlements’ document BCBS 239.

BCBS shows industry’s need for data governance
BCBS 239, originally called “Principles for effective risk data aggregation and risk reporting” and designed for banks, contains standards that could benefit many other sectors, stated technology writer Malcolm Chisholm, Ph.D.

Institutions could find BCBS particularly useful, as their focus on data governance has intensified significantly in the last several years. In this series, we will explore the sector’s changing data trends, review the document’s principles, and provide additional frameworks a buy-side firm can use to enhance its information policies and procedures.

Changing regulatory paradigms
The financial services industry’s focus on effectively supervising data management contrasts sharply with the paradigm that existed before the financial crisis, as regulators paid little attention to industry professionals interested in data management, according to conversations the author had with Michael Atkin, managing director of the Enterprise Data Management Council.

Regulations far more stringent after crisis
Since the crisis, global regulators have changed their tune, working with lawmakers to design rules and regulations in an attempt to prevent a similar event down the line. These key parties have enacted several regimes, including the Dodd-Frank Act and European Market Infrastructure Regulation. Both of these pieces of legislation have some language involving data governance.

This push for better data governance has resulted in the creation of many different regimes, and has involved several national and global organizations, for example BIS. These entities are well aware of the shortcomings institutions’ information systems suffered before the Great Recession, as this infrastructure was ill-prepared to manage financial risk.

Principles of BCBS 239
BCBS 239 contains 14 principles, including 11 created for banks and three that relate to regulators. Buy-side firms can potentially harness these guidelines to set higher standards than they have currently, or use them as a benchmark to evaluate their existing practices.

The 11 principles fall under three sections:

I Overall data governance and infrastructure

1) Governance – These financial institutions should ensure their risk reporting and their ability to gather risk data adhere to specific governance arrangements that follow Basel Committee guidance. This involves carefully managing the data quality of risks.

2) Data architecture and IT infrastructure – To ensure smooth operation of risk reporting activities and risk data aggregation, industry participants should focus on having the proper data architecture and IT infrastructure. Organizations must be sure to meet these information gathering and reporting responsibilities simultaneously, instead of having one come at the cost of another.

These general guidelines are crucial, as they provide the foundation institutions need to follow the remaining principles. Once buy-side firms have these two guidelines in place, they can start focusing on their ability to gather information, which is the basis for the next part in the series.

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