7/14/16 - Data Aggregation and Governance in Support of Firmwide Operational Strength
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7/14/16 - Data Aggregation and Governance in Support of Firmwide Operational Strength

Financial companies face increasing pressure from regulators to demonstrate that they can quickly pull together and analyze accurate data gathered from throughout the enterprise. Well-managed data aggregation and governance are essential for meeting major regulatory requirements, such as Dodd-Frank Act stress testing and the Federal Reserve’s Comprehensive Capital Analysis and Review. Good data practices are also critical for performing key business-as-usual analyses and reporting activities like asset and liability management and enterprise risk management. But many banks lack a systematic, transparent, and well-governed process for aggregating and maintaining the data required to support these critical activities.

Supervisors have raised concerns that many financial institutions cannot quickly measure their firmwide liquidity needs and counterparty exposures or aggregate other types of information on which effective decision-making is founded. Data challenges are not unique to the largest banks. In fact, most banks struggle with integrating and normalizing data from throughout the enterprise, and firms compound the issue by adding business lines and products or by acquiring sometimes disparate entities.

Financial institutions that develop right-sized, but scalable frameworks for the aggregation and governance of their data can efficiently support a range of enterprise functions and meet rising regulatory expectations for enterprise risk management.

Institutions of all sizes, and in any stage of growth or business-model evolution, can profit from enhanced data capabilities. Financial institutions will need to provide the board, management, and other stakeholders with the appropriate information, across many functional areas, to assist them in making informed decisions and improving operational strength.

Key Expectations

While key enterprise activities such as stress testing, asset and liability management, enhanced risk management, and compliance are generally prescriptive, the regulatory expectations for data aggregation and governance are not and give firms greater leeway. The Basel Committee on Banking Supervision, which issued its “Principles for effective risk data aggregation and risk reporting” in 2013, has led the way on the topic. In the U.S., the committee’s principles only apply to global systemically important banks at this time, but are nevertheless a good representation of U.S. regulators’ current thinking about what constitutes appropriate data practices. Quality and timeliness of risk information, which are key elements in the principles, are the focus of supervisors’ heightened expectations.

The principles focus on risk data, but can be applied to the enterprise and guide firms’ practices for data management and governance. Financial institutions can look at data for more than one purpose and allow a variety of stakeholders to work with the same information, but from their unique perspectives. A central program establishing standards for data integrity, quality, and timeliness will help ensure that each internal data consumer can gain access to the necessary data in an efficient and cost-effective manner.

Best Practices

As financial institutions design, develop, implement, and maintain their frameworks for data aggregation and governance, there are several key areas to address:

  • Data ownership/stewards
  • Data standards, quality, and accuracy
  • Source dispersion and data integration
  • Data transformation
  • Data controls and reconciliation
  • Data-validation processes
  • Automation of data processes
  • System vendors

The best data practices enhance an institution’s business practices in a transparent and scalable manner. Strong data governance and related processes should be the foundation of risk management, risk-based decision-making, and risk-driven planning and are key to the success of a financial firm’s enterprise functions.

Frameworks for data governance should:

  • Establish clear ownership and strong change controls
  • Contain clear procedures and policies for independent verification of accuracy
  • Address idiosyncratic challenges related to aggregating, managing, and processing the firm’s data
  • Be adaptable to changing technologies and available data pools
  • Install a system of metrics to monitor data quality over time
  • Include an appropriate management information system and related data processes
  • Be well documented and actionable

Getting Started

Banks can support continued growth and meet regulatory expectations for data aggregation and governance by measuring their current framework and capabilities against emerging regulatory expectations and developing long-term plans.

In this effort, banks should assess six key areas:

1

Governance

A bank’s data-aggregation capabilities and risk-reporting practices should be subject to strong governance.

2

Accuracy and Integrity

A bank should be able to capture and aggregate all material data from throughout the banking group. Data should be available by business line, legal entity, asset type, industry, region, and other groupings.

3

Completeness

A bank should be able to capture and aggregate all material data from throughout the banking group. Data should be available by business line, legal entity, asset type, industry, region, and other groupings.  

4

Adaptability

A bank should be able to aggregate data to meet a broad range of on-demand, ad hoc requests for risk management reporting, including requests during crises, requests due to changing internal needs, and requests to meet supervisory queries.  

5

Timeliness

A bank should be able to aggregate up-to-date data in a timely manner, while also meeting the principles for accuracy, integrity, completeness, and adaptability.  

6

Data Architecture and Information Technology

A bank should design, build, and maintain data architecture and IT infrastructure that fully support its data aggregation and enterprise reporting practices.  

A financial institution’s plans for improved data governance should take into account its desired capabilities and internal goals and key regulatory deadlines. A methodical implementation approach allows for phased enhancements, as a firm progresses toward key business goals and regulatory thresholds.

Banks can continuously monitor the framework as regulatory expectations change and the business evolves. Ongoing framework assessment enables the bank to maintain practices for data aggregation and governance that fully comply with evolving regulation and industry best practices.

Banks that plan now will help themselves meet regulators’ expectations, establish solid frameworks for data governance, and broaden these efforts for enhanced enterprise analysis and reporting.

Beyond planning, the bank should move quickly to implement a robust data aggregation and governance framework, following a process that leads from overall goals and objectives, through a design phase and into implementation.

How Promontory Can Help

Promontory has extensive knowledge of best practices for data aggregation and governance, direct experience with institutions of all sizes and complexities, and unparalleled insight into regulators’ expectations. We help clients plan and implement data-governance improvements, so that an organization’s capabilities match its level of complexity and surpass regulatory requirements.

Our solutions for risk-data aggregation and governance scale with the complexity and size of the institution, and include:

  • Performing assessments of existing data governance, infrastructure, and reporting against regulatory requirements and best practices
  • Developing phased medium- and long-term implementation plans
  • Developing comprehensive frameworks for data governance and controls
  • Designing end-to-end data-aggregation workflows
  • Developing data inventories and data maps
  • Advising on IT implementations in support of data governance

Contact Us

Please contact Promontory to discuss how we can help improve your financial institution’s risk management through enhanced programs for aggregating and managing firmwide data.

David Samuels
Managing Director
dsamuels@promontory.com
+1 212 542 6776