5 Data Challenges That Frustrate Chief Risk Officers

Frustrated Chief Risk OfficersIt has never been a more challenging time to be a Chief Risk Officer at a financial services firm. New regulations (CCAR, Basel III, BCBS 239, Solvency II, EMIR) have increased the complexity of the role. Today, risk management organizations must use precise data to measure risk, allocate capital and cover exposure. In addition, they must equip compliance groups to explain these decisions to industry regulators.

The challenges facing a Chief Risk Officer are even more daunting when the data at the heart of each decision is incomplete, inaccessible or inaccurate.  Unless the data is complete, trustworthy, timely, authoritative and auditable, success will be hard to come by.

When data issues arise, most CROs lay blame at the feet of their risk applications. Next, they blame IT and the people and processes responsible for providing data to your risk modeling and analysis applications.  However, in most situations, the issue with the data is neither the fault of the applications nor the IT groups. The reality is, most business users are unfamiliar with the root causes of data issues. More importantly, they are unfamiliar with available data and information management solutions to resolve and prevent similar issues.  The root causes for existing data issues stem from processes and tools IT development teams use to deliver data to risk management groups.  Regrettably, ongoing budget constraints, lack of capable tools, and fear of becoming obsolete have resulted in CIO leaders “throwing bodies at the problem.” This approach consumes IT worker cycles, as they manually access, transform, cleanse, validate, and deliver data into risk and compliance applications.  

So what are the data issues impacting risk management organizations today? What should your organization consider and invest in if these situations exist?  Here is a list of issues I have heard through my own conversations with risk and technology executives in the global financial markets.  The following section is to help Chief Risk Officers, VP of Risk Management, and Risk Analysts to understand the solutions that can help with their data issues.

Challenge #1:     I don’t have the right data in my risk applications, models, and analytic applications. It is either incomplete, out of date, or pain incorrect.

 Root Causes:

  • The data required to manage and monitor risk across the business originate from hundreds of systems and applications. Data volumes continue to grow every day with new systems and types of data in today’s digital landscape
  • Due to the lack of proper tools to integrate required data, IT developers manually extract data from internal and external systems which can range in the hundreds and comes in various formats
  • Raw data from source systems are transformed and validated custom coded methods using COBOL, PLSQL, JAVA, PERL, etc.

Solutions that can help:

Consider investing in industry proven data integration and data quality software designed to reduce manual extraction, transformation, and validation and streamline the process of identifying and fixing upstream data quality errors. Data Integration tools not only reduce the risk of errors, they are designed to help IT professionals streamline these complex steps, reuse transformation and data quality rules across the risk data management process to enable repeatability, consistency, and efficiencies that require less resources to support current and future data needs by risk and other parts of the business.

Challenge #2:  We do not have a comprehensive view of risk to satisfy systemic risk requirements

 Root Causes:

  • Too many silos or standalone data marts or data warehouses containing segmented views of risk information
  •  Creating a single enterprise risk data warehouse takes too long to build, too complex, too expensive, too much data to process all in one system

 Solutions that can help:

  • Data virtualization solutions can tie existing data together to deliver a consolidated view of risk for business users without having to bring that data into an existing data warehouse.
  • Long term, look at consolidating and simplifying existing data warehouses into an enterprise data warehouse leveraging high performing data processing technologies like Hadoop.

Challenge #3:  I don’t trust the data being delivered into my risk applications and modeling solutions

 Root Causes:

  • Data quality checks and validations are performed after the fact or often not at all.
  • Business believes IT is performing the required data quality checks and corrections however business lacks visibility into how IT is fixing data errors and if these errors are being addressed at all.

 Solutions that can help:

  • Data quality solutions that allow business and IT to enforce data policies and standards to ensure business applications have accurate data for modeling and reporting purposes.
  • Data quality scorecards accessible by business users to showcase the performance of ongoing data quality rules used to validate and fix data quality errors before they go into downstream risk systems. 

Challenge #4:  Unable to explain how risk is measured and reported to external regulators

Root Causes:

  • Related to IT manually managing data integration processes, organizations lack up to date, detailed, and accurate documentation of all of these processes from beginning to end.  This results in IT not able to produce data lineage reports and information resulting in audit failures, regulatory penalties, and higher capital allocations that required.
  • Lack of agreed upon documentation of business terms and definitions explaining what data is available, how is it used, and who has the domain knowledge to answer questions

Solutions that can help:

  • Metadata management solutions that can capture upstream and downstream details of what data is collected, how it is processed, where it is used, and who uses it can help solve this requirement.
  • Business glossary for data stewards and owners to manage definitions of your data and provide seamless access by business users from their desktops

Challenge #5:  Unable to identify and measure risk exposures between counterparties and securities instruments

 Root Causes:

  • No single source of the truth – Existing counterparty/legal entity master data resides in systems across traditional business silos.
  • External identifiers including the proposed Global Legal Entity Identifier will never replace identifiers across existing systems
  • Lack of insight into how each legal entity is related to each other both from a legal hierarchy standpoint and their exposure to existing securities instruments.

 Solutions that can help:

  • Master Data Management for Counterparty and Securities Master Data can help provide a single, connected, and authoritative source of counterparty information including legal hierarchy relationships and rules to identify the role and relationship between counterparties and existing securities instruments. It also eliminates business confusion of having different identifiers for the same legal entity by creating a “master” record and cross reference to existing records and identifiers for the same entity.

In summary, Chief Risk Officers and their organizations are investing to improve existing business processes, people, and business applications to satisfy industry regulations and gain better visibility into their risk conditions.  Though these are important investments, it is also critical that you invest in the technologies to ensure IT has what it needs to access and deliver comprehensive, timely, trusted, and authoritative data. 

At the same time, CIO’s can no longer afford wasting precious resources supporting manual works of art. As you take this opportunity to invest in your data strategies and requirements, it is important that both business and IT realize the importance of investing in a scalable and proven Information and Data Architecture to not only satisfy upcoming regulatory requirements but have in place a solution that meets the needs of the future across all lines of business.  Click here to learn more about informatica’s solutions for banking and capital markets.


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