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Introduction
Challenges
Undefined Reporting Processes: There was no defined process for reporting data issues related to market risk, complicating compliance with FRTB regulatory requirements.
Lack of Standardized Credit Risk Rating: Diverse methodologies across three different external ratings providers and internal rating systems led to inconsistencies in credit risk ratings.
Security Reference Data Issues: Inadequate data cleansing and controls during migration from the golden source to consuming applications resulted in compromised data quality.
Implementation
DQ Issue Management: This bank implemented a streamlined DQ issue management system using Microsoft 365 technologies, which introduced zero incremental cost to the bank for standing up a production-ready MVP/POC.
Credit Risk Rating Review: The methodology across all market risk applications was reviewed, and this bank worked with Market Risk, Risk Managers (RMs) to confirm the expected methodology. A current state and to-be analysis of Credit Risk Ratings post-changes were created to drive the discussions.
Security Reference Data Controls: Controls were introduced as part of the migration process from source to downstream applications to ensure data cleanliness and heightened quality.
Results
Efficiency in Issue Management: The introduction of the DQ Issue Management Tool MVP cut down issue root cause analysis and remediation by more than 50%, enhancing visibility for end users regarding the status and current ownership of issues.
Standardized Credit Risk Ratings: The firm's credit risk rating was standardized across all market risk applications, resulting in fewer breaks from inter-system reconciliations and root cause analysis of differences in ratings output.
Enhanced Data Quality: The quality and cleanliness of security reference data used for market risk calculations were significantly increased, giving Risk Managers greater confidence in the reports generated to drive the firm's risk management decisions for market risk.
Conclusion
This bank successfully addressed key challenges in market risk reporting and data quality management through strategic initiatives that streamlined processes, standardized credit risk ratings, and improved the quality of security reference data. By leveraging technology and collaborating with internal stakeholders, this bank not only enhanced its compliance with regulatory requirements but also improved operational efficiency and the reliability of its risk management reports. This case study exemplifies how targeted interventions in data management can result in substantial improvements in financial reporting and risk assessment practices.