There is a general consensus among bankers as to which challenges posed by the Basel III finalization reforms (commonly referred to as Basel IV) are most acute, with credit risk identified as the biggest challenge, and of the need to use the data generated to make their institutions more efficient and profitable. There is, however, less consensus on how to bring risk management systems up to a standard necessary to address the substantial changes that Basel IV presents. That’s according to a report, “Basel IV Readiness Survey – Consensus Is In,” released by Wolters Kluwer’s Finance, Risk & Reporting (FRR) business.
Approximately 90% of bankers surveyed cited the importance of integrating exact regulatory metrics into business projections for purposes such as capital planning and budgeting. Rules related to credit risk, meanwhile, were identified by 43% of the more than 150 respondents as the biggest challenge in implementing Basel IV, with 20% stating that the biggest challenge were concerns specifically related to counterparty credit risk rules.
Basel IV is guided by two broad principles: proportionality, under which larger institutions face more burdensome requirements, and interdependency, which focuses on the influence of different types of risk on one another. Prudential consolidation is an especially important issue cited by respondents in the European Union – this will require institutions to run certain Basel IV metrics on different levels. Due to proportionality, moreover, this could imply different kinds of calculations at various consolidation levels. More than 75% of respondents consider it mandatory or important that data management solutions incorporate the tests used to determine whether simpler calculation methods are permitted under the proportionality doctrine, with Asia-Pacific bankers especially inclined to call it mandatory.
Respondents also found it important to use information gleaned from Basel IV compliance to evaluate the costs and benefits of individual deals. About 60% expect compliance and reporting to be a daily occurrence, and most of the rest anticipate a monthly obligation. While 28% of respondents consider a data solution that combines in-house and vendor systems the best way to go, 20% of respondents would select a single vendor with a holistic approach.
“Taken together, the results suggest a consensus on what the priorities should be concerning Basel IV, and for what reasons. Credit risk indeed may be the most difficult matter to tackle in complying with the new framework, as the bankers surmise. Factors related to credit are key to a bank’s risk management efforts, profitability and overall health, a truth reflected in Basel IV’s more stringent and detailed requirements, down to individual deal level,” commented Inga Rottmann, Vice President of Marketing for Wolters Kluwer FRR. “The broad agreement on consolidation of financial accounts and the insistence that compliance data be used to inform business decisions and strategic planning reveal a strong appreciation for the need to integrate data management and operational capabilities.”
To help with preparation for the rules Wolters Kluwer FRR clients are implementing OneSumX Basel IV - the integrated regulatory compliance and reporting solution that helps financial firms achieve consistency and address interdependencies within Basel IV. Using a single source of data for finance, risk and regulatory reporting that is enriched with value-added content from Wolters Kluwer’s in-house experts, OneSumX for Basel IV helps remove barriers triggered by traditional silo structures and generates a deeper insight for the entire enterprise.
Wolters Kluwer FRR, which is part of Wolters Kluwer’s Governance, Risk & Compliance (GRC) division, is a global market leader in the provision of integrated regulatory compliance and reporting solutions. It supports regulated financial institutions in meeting their obligations to external regulators and their own board of directors.
Wolters Kluwer FRR receives frequent independent recognition of its excellence and innovation, celebrating a record year for award wins in 2019. Risk magazine recently awarded the company its coveted Regulatory Reporting System of The Year Award for the second year running and Wolters Kluwer FRR is the #1 provider in both Regulatory Reporting and Liquidity Risk according to the RiskTech100, as compiled by Chartis Research.
Wolters Kluwer’s GRC division offers a range of expert solutions to help the financial services industry respond to the COVID-19 pandemic. Its Compliance Solutions business, for example, offers Paycheck Protection Program Supported by TSoftPlus™ to support stimulus loan applications and loan forgiveness processes under the Coronavirus Aid, Relief, and Economic Security Act or U.S. CARES Act. Wolters Kluwer Lien Solutions, meanwhile, has also recently established a technology solution specifically designed to help U.S. lenders navigate Paycheck Protection Program loan applications, and associated compliance and risk mitigation requirements, resulting from the CARES Act. The Business Entity Search for CARES Act solution conducts bulk/batch corporate identity searches to verify the business status of potential borrowers.