On 24 July 2023, the European Central Bank (ECB) launched a public consultation on its draft guide on effective risk data aggregation and risk reporting. The guide outlines prerequisites for effective risk data aggregation and risk reporting (RDARR) to assist banks in strengthening their capabilities, building on good practices observed in the industry.
The aim of the draft guide is to specify and reinforce supervisory expectations in this area, taking into account the Basel Committee on Banking Supervision’s (BCBS) Principles for effective RDARR. It complements and does not replace the guidance already provided since 2016 in public communications and through institution-specific supervisory activities.
The ECB observes that adequate capabilities in this area are still the exception, and it urges banks to improve their risk data aggregation frameworks, also in light of the BCBS principles. Banks are expected to step up and conclude their efforts to improve their governance framework and data management process in a timely manner.
The guide is part of a wider strategy intended to ensure that supervised banks ultimately achieve substantial progress in remedying their identified structural shortcomings in risk data aggregation.
Seven areas are singled out in the guide as important areas for robust governance and effective processes to identify, monitor and report risks:
- The responsibility of a bank’s management body.
- The scope of application of the data governance framework.
- Key roles and responsibilities for data governance.
- The implementation of a group-wide integrated data architecture.
- The effectiveness of data quality controls.
- The timeliness of internal risk reporting.
- Implementation programs.
The ECB also flags that:
- The effective management and aggregation of risk-related data is essential for banks’ sound decision-making and strong risk governance. This applies to data used to steer and manage banks, both strategically and operationally, as well as data used for risk management and financial and supervisory reporting.
- The essential capabilities and practices identified in the draft guide are intended to assist banks in their efforts to better identify and manage group-wide risk concentrations on the basis of quality data, whether it is credit, market or third-party related. This has proved to be critical for effective risk management, not just during the 2008 financial crisis but also more recently during the coronavirus (COVID-19) pandemic and other crisis situations.
As part of the public consultation process, the ECB plans to organise a stakeholder meeting during the consultation period, bringing together relevant experts at supervised institutions and other interested parties.
The consultation closes on 6 October 2023.