ECB Compliance

Industry Experts Emphasize the Critical Importance of ECB’s New Risk Data Standards: Banks Urged to Upgrade Systems or Face Severe Penalties

The European Central Bank (ECB) has released a pivotal Guide outlining essential data quality requirements for the risk quantification, monitoring and determination of the regulatory capital. This guide is a cornerstone of the ECB’s 2023-25 work program, exerting significant pressure on the management bodies of banks and lending organizations, with severe consequences for non-compliance.

The ‘Guide on Effective Risk Data Aggregation and Risk Reporting‘ critiques current industry practices, noting that “Institutions are still focusing on the cost and implementation challenges […] rather than the benefits of remedying long-standing deficiencies in this area.” The Guide highlights deficiencies in the ‘Regulations on Data Asset Registration and Reporting’ (RDARR), indicating that many institutions are still far from meeting the required standards.

To address these issues, the ECB has developed a targeted supervisory strategy for 2023-2025. The focus is on improving integrated data architecture, enhancing group-wide data quality management, and ensuring the timeliness of internal risk reporting.

Commenting on the ECB’s new strategy, Sanjin Bogdan, Head of IFRS 9 at Aryza, stated, “The emphasis on data quality is critical for effective risk management, enabling institutions to avoid material losses, accurately quantify exposures, and efficiently monitor adherence to risk limits.”

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 metadata 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”, Sanjin Bogdan stated.

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 transparency from data field to systems.

Sanjin Bogdan: “A unified data approach is essential for IFRS 9, RWA, and IRB processes from compatibility, efficiency and transparency perspectives.”

In today’s economic climate, characterized by uncertainty and rapid changes, effective risk management is more critical than ever. To achieve this, banks should look to implement BCBS 239 principles which can enable them to react quickly to risk buildup, make informed decisions, and meet regulatory requirements, thus ensuring the stability and resilience of institutions.

Get your Risk Data Management ECB ready