Let’s take a look at what regulation means to the financial services sector and consider what can be learned from the world of elite running, as banks enter the final leg of the ‘marathon’; compliance with the principles of BCBS 239 by January 2016.
What can banks learn from the elite runner?
Elite running’s most successful approach has always been to train in ‘camps’, a group of athletes training in isolation with clear goals, a well-defined training regime and most importantly an element of competition, or running partners.
We only need to look back at the London 2012 Olympics to see the examples of Mo Farah and Galen Rupp, who finished first and second in the men’s 10,000m final or to Usain Bolt and Johan Blake in the men’s 100m. Mo Farah and Galen Rupp were training partners at the Oregon Project, a training camp set up as a response by US athletics to end the medal drought in long distance running.
In elite running, training and preparation are key, ‘fail to prepare, prepare to fail’. Banks don’t want to be analogous to ill prepared runners that don’t cross the finish line due to a lack of stamina or an injury. Getting a firm handle on management of Data and Risk isn’t a stroll in the park and as BCBS 239 was announced in Jan 2013, two years into this marathon, G-SIBs will have programmes underway – and if they don’t, now is the time to get in gear!
For those of you unfamiliar with the regulation, 14 principles were issued by the Basel Committee on Banking Supervision (the Basel Committee) in January 2013. The principles were borne in the wake of the global financial crisis of 2007 to 2008 and aim to strengthen banks’ holistic view of risk ensuring that risk data is aggregated and reported across risk types (market risk, liquidity risk, credit risk, operational risk, etc.) and business lines.
The principles are addressed to those banks the Basel Committee consider to be of systemic importance, the ‘elite runners’.
Regulatory ‘running partners’
Banks tend to approach regulations in isolation, both from an internal and external perspective and as evidenced in running there is merit in working with other ‘runners’. G-SIBs have taken a pragmatic approach to risk data aggregation and reporting, acknowledging that in broad terms they have mature risk reporting processes and robust governance frameworks. This has manifested in instances where banks are adopting tactical, rather than strategic, approaches and solutions to regulatory compliance. The effort in solving for a more strategic solution would be greatly reduced if banks had ‘running partners’; sister programmes coordinated by a ‘centre of excellence’ or agreements with other G-SIBs to share approach documents.
The Basel Committee’s updates in December 2013 and January 2015 shed light on the approaches taken by the different banks and the progress made in adopting the principles. The committee noted that in both instances the three principles with the lowest reported compliance related to data architecture and infrastructure, reporting adaptability and accuracy.
Interestingly, banks indicated that they don’t materially comply with the principles relating to governance and data and yet rated themselves as largely compliant with principles relating to accuracy and integrity! This implies tactical processes and solutions have been adopted to achieve accuracy and integrity, if the core elements of governance and data are weak; imagine what honest and transparent collaboration could give the banks.
The final sprint
Clearly, this is a prime example of an issue which could quite easily be addressed by more internal and external cooperation, resulting in collective success. Collaboration and knowledge share would allow for banks to think more strategically about compliance and learn lessons from the ‘competition’, both internally and externally, particularly as there is no second or third place in compliance, all banks need to comply or potentially lose their licence to operate!
It isn’t a coincidence that both Mo Farah and Galen Rupp, the 10,000m silver and gold Olympic medallists, have a lethal kick in the final sprint of races - what is interesting to note is that before training with Mo Farah, Galen had a reputation for finishing weakly. Just as Mo realised, banks need to understand that there is as much to gain from sharing your strengths with the competition as there is to exposing your weaknesses.
In just over six months, all banks will be crossing the regulatory finish line – in different states of readiness. The key is whether they accept the need for collaboration before they reach the finish line, or whether regulatory pressure forces them to do so, one they have crossed the line and results are published.
Photo by Richard Phipps, via flickr
Risk and Regulatory Compliance
The sponsor for Risk and Regulatory Compliance at Capgemini Consulting UK is Anuj Kumar, Head of Risk and Regulatory Compliance Consulting. Connect with Anuj via his LinkedIn profile here.