For most financial institutions, the need to have robust data quality, management, and reporting practices for risk and financial information is nothing new. But, ineffective risk data aggregation capabilities and risk reporting practices lead to failure in identifying the risks. In this article at Anlystprep, the author explains the benefits of effective data aggregation and reporting and describes good risk reporting practices.
Benefits of Risk Data Aggregation and Reporting
Risk data aggregation, according to the Basel Committee, is ‘defining, gathering, and processing risk data according to the bank’s risk reporting requirements to enable the bank to measure its performance against its risk tolerance/appetite.’
How exactly do effective risk data aggregation and reporting benefit a bank?
- The risk data aggregation increases the organization’s ability to anticipate problems. The data gives managers a holistic view of risk exposures. Further, it enables them to foresee the issues even before they occur.
- Effective risk data aggregation increases the efficiency and profitability of financial institutions.
- They increase the ability to find routes back to financial health, especially in times of financial crisis. For instance, accurate risk data aggregation allows a bank to negotiate better with credit deals or helps the banks to identify a suitable merger partner.
Best Practices and Principles to Consider
Subject your bank’s risk data aggregation capabilities and risk reporting practices to strong governance arrangements. It must be in sync with other risk principles and guidance established by the Basel Committee.
As a financial institution, you must be able to capture and aggregate all material risk data across the organization. Include all data that permits identifying and reporting risk exposures. Ensure that data is available by business line, asset type, industry, region, legal entity, and other groupings, as relevant for risk in question.
You must be able to generate aggregate and up-to-date risk data promptly while also meeting the principles relating to integrity and accuracy, completeness, and adaptability.
Undertaking a comprehensive risk data infrastructure assessment will provide you with a better picture to conceive. You can implement a well-thought-out compliance strategy and offer enough time for effective remediation actions. To read the original article, click on https://analystprep.com/study-notes/frm/part-1/risk-data-aggregation-and-reporting-principles/.