Everything You Need to Know About BCBS 239
BCBS 239 is Basel Committee on Banking Supervision’s standard number 239. The title of this standard is “Principles for effective risk data aggregation and risk reporting”. The main objective of the standard is to strengthen and to enhance the risk management and decision making processes at bank’s internal risk reporting practices, and risk data aggregation capabilities. This standard was established in the year 2013 january and is applicable from 1st January 2016 for (G-SIBs) Global Systemically Important Banks.
BCBS 239 is about the management of financial risks and risk data aggregation. With BCBS 239 banks data architectures and information is required to focus on improving the ability to identify issues swiftly, aggregate risk exposures and maintain a sound risk management system.
With BCBS 239 there are a plethora of benefits for the banks such as improvement in the resolvability of a bank, to make sound judgments, the status of the risk function can be known, reduced probability of losses, gains in efficiency, increased profitability and overall enhanced strategic decision making.
BCBS 239 is a document to precisely define reconciliation requirements and data validation. The Risk team introduces new controls and checks for the data processes which are related to risk reporting and data aggregation. Under the principles for risk reporting and data aggregation, BCBS 239 expects banks to contemplate the requirements of data accuracy comparable to the accounting materiality.
From a business rules point of view, BCBS 239 focuses on elevating the requirements related to data quality from simple concepts such as data profiling.To focus on risk exposure and complete visibility, the Basel Committee defined 14 vital principles with a standard called BCBS 239. Published in the year 2013, the Basel Committee standard number 239, the main purpose of which is to create the conditions for transparency in banking institutions
Let us now discuss 14 basic principles of BCBS 239
Principle 1 Governance – A bank’s risk data aggregation and risk reporting practices should be in regard to the arrangements to strong governance consistent with other guidance and principle which is established by the Basel Committee.
Principle 2 Data architecture and IT infrastructure – Bank should be able to design, build and maintain data architecture and IT infrastructure
Principle 3 Accuracy & Integrity – For the purpose of meeting crises/stress reporting accuracy requirements, a bank should be capable of generating reliable and accurate data. To minimise the probability of any errors, data should be collected on an automated basis.
Principle 4. Completeness – A bank should capture and collect all risk material related to risk data across the banking group. Data should be available by industry, region, asset type, legal entity, business line and other groupings as pertinent for the risk in question, that is identifying and reporting risk exposures, concentration and emerging risks.
Principle 5. Timeliness – A bank should generate up-to-date and collect risk data in a timely manner while also meeting the principles in regard to completeness, adaptability, accuracy and integrity.
Principle 6. Adaptability – A bank should be able to generate the risk data for the purpose of meeting a huge range of on-demand requests related to ad-hoc risk management reporting, requests in regard to stress/crisis situations, requests in regard to changing internal needs and requests to meet any supervisory queries.
Principle 7. Accuracy – Reports in regard to risk management should precisely and accurately convey risk data and should reflect risk in the same manner. Reports should be efficiently reconciled and validated.
Principle 8 Comprehensiveness – Reports in regard to risk management should focus on covering all material risk areas within the bank. The scope and depth of these reports should be consistent with complexity and size of the bank’s risk and operations profile.
Principle 9. Clarity and usefulness –The purpose of the reports in regard to risk management should communicate the information in a clear and crystal format. Furthermore, the reports should be easy and will enable informed decision-making.
Principle 10. Frequency – The senior and board management should focus on setting the frequency of risk management report production and its distribution. The requirements in regard to frequency should reflect the needs and requirements of the recipients, nature of the risk reported and the speed at which the risk can change. Furthermore, during the time of stress/crises, the reports and its frequency should be increased.
Principle 11. Distribution – By ensuring confidentiality is well maintained, the reports in regard to risk management should be distributed to the relevant parties
Principle 12. Review – With the above eleven principles supervisors should periodically review and evaluate a bank’s compliance.
Principle 13. Supervisory measures and remedial actions – Supervisors should use appropriate tools and resources that requires to take timely remedial action by the bank to address any deficiencies in risk reporting and risk data aggregation capabilities.
Principle 14. Home/host cooperation – Supervisors should coordinate with supervisors in other respective jurisdictions regarding the review, implementation and for remedial action if needed.
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