Are manual workarounds limiting the benefits of BCBS239 compliance?
As BCBS239 continues to offer substantial challenges to firms, Alan Morley (AML & Risk Practice Lead, USA) discusses whether manual workarounds are having a negative impact on the compliance process, and how Banks need to understand and monitor the amount of debt they are storing up for the future.
An overreliance on manual workarounds and tactical mitigants are preventing globally systemically important banks (G-SIBs) from realising the full benefits of BCBS239.
In its second progress report published in January 2015, the Basel Committee on Banking Supervision revealed that almost half of G-SIBs questioned did not believe they would comply with all 11 banking principles set by the regulation before the deadline of 1 January 2016.
Attempts to establish strong data governance, aggregation, and architecture processes necessary for compliance have proved difficult to achieve for many of the G-SIBs. To address this challenge, firms are implementing large-scale projects to improve their IT architecture and infrastructures, but many are also relying heavily on manual workarounds and tactical mitigants in their efforts to achieve compliance.
Manual workarounds and tactical mitigants are typically major constraints on the flexibility, adaptability and operational robustness of BCBS239 solutions. They may achieve compliance on a superficial ‘box ticking’ level, but they do not go to the heart of addressing many of the deep seated challenges surrounding risk data aggregation and reporting that BCBS239 was introduced to address.
There are of course occasions when manual workarounds and tactical mitigants (such as end-user applications) are sometimes difficult to avoid. However, it must be remembered that they usually increase the ‘process debt’, which normally creates a heavy penalty to be paid at some point in the future.
As with any debt that accumulates over time with a crippling rate of interest, technical and process debt can reach unmanageable proportions as complexity rises unabated. This situation increases the potential risk to a firm and also inflates the cost to eventually make a more strategic change in future.
Banks need to understand and monitor the amount of debt they are storing up for the future, and ensure that there are plans and a budget in place to address this challenge. One such plan would be to include implementation debt assessment and remediation strategies into regular technical and business audits.
Few people deny that tackling BCBS239 is a daunting challenge for firms, but many must be mindful of the consequences of relying too heavily on manual workarounds and tactical mitigants. They can bring short-term gains, but they also compromise the long-term value and benefits.
Firms should now be identifying how they can make the transition towards implementing more strategic solutions, which give them the best chance of meeting the imminent compliance deadline, and reduce any long-term technical and process debt. Moving away from an overreliance on manual workarounds and tactical mitigants, would be a good place to start.
This blog appeared on Finextra, click here to view the entry on the Finextra website.