Risk and Regulatory Data - Impact of Covid-19

With the current Covid-19 pandemic and its widespread effects, banks must rely more than ever on data driven insights to monitor their changing risk profile, support quick decision making and respond to impacts on their customers and operating models.

More high-quality data

Banks need to maintain high-quality data and have capabilities to use this to build a holistic view of their current and predictive positions.

The unprecedented nature of the Covid-19 pandemic has created the need for banks to capture new data and potentially source externally generated data sets. They then need to use this data to define and monitor additional indicators as well as produce insightful information on performance and risk exposures across all business lines and geographies.

To achieve this successfully, oversight and controls around how data is captured, consumed, interpreted and reported must be strong and robust. Repeat occurrence of significant fines similar to the ones issued by the UK regulators in 2019 due to failures in some banks’ regulatory reporting framework is not an option, given the current strain on financial resources and competitive advantage that can be gained from effectively utilising data.

As an illustration of new information required from banks, the European Banking Authority (EBA) released guidance in late June 2020 on additional reporting and disclosures relating to measures they introduced in response to Covid-19[i]. Banks needed to report those as early as 30th June reference date.

Increasing data driven supervision

The emphasis on comprehensively and effectively utilising data is further heightened by regulators' push for data driven supervision.

According to the Financial Conduct Authority (FCA) 2020/2021 Business Plan published in the early weeks of UK lockdown, a key area of focus for their £30 million investment over the next 3 years is in developing their IT capabilities and system infrastructure to better utilise the regulatory data collected.

This is expected to deepen the regulator’s understanding of the market and facilitate their objective of delivering better customer outcomes[ii].

State of progress made

The April 2020 Basel Committee on Banking Supervision (BCBS) report on progress towards implementing BCBS 239 ‘Principles for Effective Risk Data Aggregation and Risk Reporting’ showed that banks are taking right steps in enhancing their risk data governance, infrastructure, aggregation capabilities and reporting practices. The review identified the following areas where notable improvements were observed[iii]:

  • Establishing enterprise data strategies and data management frameworks
  • Strengthening governance arrangement and data oversight responsibilities
  • Improving data dictionaries, enterprise data quality metrics and data lineage
  • Enhancing data quality assurance
  • Automating reporting platforms
  • Establishing enterprise-level reporting policies

Next Steps

Banks cannot afford to lose momentum on progress made so far. The pandemic provides an opportunity to:

  • Assess operational effectiveness of data improvement efforts
  • Test crisis reporting capabilities
  • Evaluate flexibility of reporting framework to adequately and rapidly respond to changing requirements.

As the new ‘normal’ post Covid-19 takes shape, banks that are able to harness the power of data in their decision-making process will be better poised to come out of this crisis with a strong position.