If they have not already started, Domestically Significant Investment Banks (D-SIBs) should start working on their BCBS239 compliance strategies immediately if they are to avoid the difficulties experienced by their G-SIB (Globally Significant Investment
The Basel Committee on Banking Supervision published its second report in January 2015 charting the progress made by G-SIBs in their attempts to comply with its “Principles for effective risk data aggregation and risk reporting”. The report revealed mixed
results, with almost half of G-SIBs questioned admitting they will be unable to comply with at least one of the 11 banking Principles by the 1st January 2016 deadline.
The spotlight is now shifting to the D-SIBs and their respective efforts towards compliance. Under the guidelines set, D-SIBs are not required to implement BCBS239 by January 2016. However, the Bank for International Settlements (BIS) recommended that regional
regulators apply a three year time-frame, starting from when the individual organisation is designated as a D-SIB. Since the regulators’ recognition of D-SIBs is not a globally synchronised process, there is a somewhat blurred timeline; but the D-SIBs know
who they are, and have begun or are beginning to budget, plan and mobilise their BCBS239 programmes.
Starting from scratch and with three years to implement, D-SIBs should be able to take advantage of the experiences and lessons learned by the G-SIBs – many of which were learned the hard way! They can avoid the costly mistakes of many G-SIBs by using their
time and budgets more efficiently and ensuring that appropriate tools, data models, processes and other accelerators are utilised. D-SIBs can also reduce project risk and aim for a quicker and better quality end result.
Moreover, D-SIBs who seize the opportunity to get it right the first time will also be able to avoid the near-ubiquitous tactical mitigants and manual processes found in the approach of the G-SIBs. They can focus on strategic build, rather than burden themselves
with costly technical and process debt for years to come.
In sharp contrast to the majority of G-SIBs, it is even possible that some D-SIBs will realise the gains in efficiency, reduced probability of losses, enhanced strategic decision-making, and increased profitability cited by the BIS as the core benefits of
improving their risk data aggregation capabilities.
The challenges and problem characteristics for D-SIBs are of course different from G-SIBs; D-SIBs are smaller and typically less complex than G-SIBs, with fewer distinct entities and source systems. This means the scale of the challenge and associated costs
are reduced and in principle at least, more easily managed. On the other hand, there still is a significant, minimum programme and infrastructure investment cost even for D-SIBs, who will also generally be more sensitive to budgetary pressures and cost of
ownership. Smaller D-SIBs will also not necessarily have on hand the large regulatory change and execution teams to implement the programme.
Those D-SIBs who undertake their BCBS239 programme with a more strategic approach, and who pay close attention to the lessons learned by the G-SIBs should be able to reduce risks, project costs, and achieve not simply compliance, but an integrated risk aggregation
platform which adds real value. The challenge for the D-SIBs is whether they can act quickly enough, embrace BCBS239 and take full advantage of opportunities it presents.