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Message Standardization approach towards Risk Data Aggregation

The second and third principle of RDA (BCBS239) emphasizes on reliable risk data management framework. Data should be complete enough to reflect the enterprise-wide view of risk to all the stakeholders and it applies to all the relevant risk dimensions like Lines of Business, Geography, and Counterparty etc. Over and above data should be complete, accurate and timely.

Isn't it a tall order for the bank considering disparate sources of data, different data standards and messaging standards etc!

On the outset although data aggregation efforts looks like a time bound regulatory compulsion but on the long run it gives a number of economic benefit and strengthens bank's business viability in terms of expansion to new business areas, internal expansion, launching new services/products, market integration, consolidation of external channels, improve STP rate etc.

We are unanimous that data aggregation from different source and business area is a key step in effective risk monitoring in order to meet compliance and regulatory reporting requirements. So the financial world needs a single authoritative library of financial data definition which facilitates to record data components of every relevant transaction that can be traced. The data interpretation should be clear, consistent and unambiguous and equivalent from one source to another.

In this juncture, ISO 20022 standards seem to be an efficient communication tools that brings a common understanding of information across all transactional systems in the banks and FI. The standard covers the business segments from payments, foreign exchange to securities market etc.

Today they are available for 7 business areas or domains, where huge volumes of business data are created out of financial transactions.

pain: Payment Initiation

pacs: Payment Clearing and Settlement

camt: Cash Management

setr: Securities Trades

sese: Securities Settlement

acmt: Account Management

tsmt: Trade Services management

The biggest advantage is that it facilitates mapping between standards or acts as medium of interoperability between standards, lines of business and source system; basically a key criteria for data aggregation.

 ISO 20022 facilitate data definition, an industry standard taxonomies for naming convention and creation of data model. It helps in accurate identification of financial instruments, counterparties to transactions, asset details and other details that are essential for data aggregation and risk monitoring. As uniquely identifying parties to assets and product identifiers brings comparability across financial products and risk exposures, it brings interoperability between different standards.

Let's use an example of SWIFT MT tag for payment like F52A (Ordering institution) and the FEDWIRE payment message tag {5100} (Originator FI) and its counterpart in ISO 20022 that is tag (DebtorAgent). All are essentially describing the same business concepts although they are structurally different in each standard. So essentially they can be mapped to same ISO 20022 business component.

This makes the life much simpler while sourcing data from different system towards data aggregation and further sharing data with downstream systems for the purposes of analytics and reporting etc.

Even the adoption of ISO 20022 standard is growing rapidly amongst the market infrastructure providers, few noteworthy are SEPA, TARGET2, EBA EURO1/STEP1, TARGET2-Securities, DTCC and ASX etc.

So by taking a long term view of creating a roadmap by adopting standards in the implementation, rather than just a compliance view help to build a resilient system.

 

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Comments: (2)

Jamie Osborne
Jamie Osborne - SWIFT - La Hulpe 14 December, 2015, 21:01Be the first to give this comment the thumbs up 0 likes

Couldn't agree more Aparty - ISO 20022 is seriously useful when looking at a BCBS 239 RDA model. The ISO 20022 Business Model is a universally trusted foundation for a common language/glossary, and the e-Repository (http://www.iso20022.org/e_dictionary.page) is a great model for your financial transaction data and much more... 

I note that you've only mentioned seven of ISO 20022's currently 22 published business areas though? (http://www.iso20022.org/full_catalogue.page) Do you consider the others less relevant to BCBS 239?

Kind regards,

Jamie

 

Aparty Behera
Aparty Behera - ORACLE - PUNE 15 December, 2015, 05:19Be the first to give this comment the thumbs up 0 likes

Hi Jamie, Thanks for the comment and bringing forth the discussion. I agree that the full catalogue covers 22 Business Areas of Financial Services and objective of the ISO 20022 is to bring a common standard in data definition and usage, so use of the standard is far reaching and multi-purpose.

In the current scenario there is no common or single solution to financial data aggregation for risk assessment due to legacy nature of application data sources. But there is no two opinion on adoption of standard as it brings uniformity and most important interoperability which helps in data aggregation from different system.

Regards

Aparty