ECB Requirements –
7 Risk Data Management Rules
1. Responsibilities of the Management Body
The management is tasked with overseeing the institution’s strategic objectives, risk strategy, and internal governance. Responsibilities include maintaining a robust data governance framework that ensures data quality in terms of accuracy, integrity, completeness, and timeliness in normal and in stress periods.
It also involves appointing specific members to oversee these responsibilities, ensuring internal risk reports contain meaningful qualitative and quantitative information, and involving key personnel like the heads of risk management, compliance, and internal audit.
2. Sufficient Scope of Application
Institutions must establish a data governance framework applicable to all significant legal entities, risks, business lines, and both financial and supervisory reporting processes. This includes managing data throughout its lifecycle from origination to reporting, and ensuring coverage of internal and external financial and supervisory reports.
3. Effective Data Governance Framework
A clear allocation of roles and responsibilities is crucial, along with meeting minimum requirements for data governance. The frameworks should be formalized in internal policies covering the underlying processes, including the roles and responsibilities of the different functions involved, such as Data Owners, a central governance function, a validation function, and an internal audit function. Institutions must also ensure that these frameworks are subject to approval at an appropriate level and undergo regular review to adhere to standards such as those set by the ECB in its Guide to the Internal Capital Adequacy Assessment Process and related guidelines on managing environmental and financial risks.
4. Integrated Data Architecture
According to the ECB Guide this should consist of data taxonomies, a dictionary of the main business definition and a metadata repository covering essential entities, risks, and reports, and the inclusion of key risk indicators and their critical data elements.
It is important to meticulously track and manage the flow of data through its lifecycle, from source to final report. This involves mapping out the entire data flow, aggregating data effectively, and ensuring an end-to-end process with no data redundancy. Each transformation needs to be clearly documented, allowing for the data to be enriched and transformed while maintaining the ability to backtrack through the entire process for transparency and replication.
Reports should be structured according to regulatory or internal requirements, detailing how data is created and used. Additionally, a comprehensive data dictionary and mapping should be maintained in consultancy, providing a clear explanation for each data field and showcasing the transparency from data field to the system.
5. Group-wide Data Quality Management and Standards
The ECB expects the implementation of data quality controls – from the point of data capture to reporting -, ensuring these controls cover accuracy, integrity, completeness, and timeliness. If feasible, this process should be automated in accordance with the ECB requirements. Furthermore, there should be a full integration of end-user computing or end-user developed applications, including an overview of such applications, into data quality management policies and processes.
6. Timeliness of Internal Risk Reporting
The frequency and production speed of internal risk reports are vital and should be consistent with the dynamics of potential changes to the risk figures. Greater dynamism requires higher reporting frequencies to respond promptly to emerging risks. The longer it takes an institution to produce an internal risk report, the longer the period in which the risk situation remains unclear.
Leveraging automated BCBS 239 Risk Data Management can significantly enhance the speed and efficiency of producing these reports. This automation ensures that the reports are produced faster but also with greater transparency, enabling on-demand access to crucial risk information.
7. Effective Implementation Programmes
The management body must oversee the timeline and milestones for implementing these frameworks and controls. Institutions that do not yet follow the best practices that are described in the BCBS 239 principles should put implementation measures in place accordingly.