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Gain Insights into Current Trends and Challenges Impacting the Financial Services Industry

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 it is better to have a long term view rather
than just a compliance view and creates a roadmap by adopting standards in the
implementation process in order to build a resilient system.

Aparty Behera is a Consulting Technical Manager for Oracle Financial Services Consulting. He can be reached at aparty.behera AT oracle.com.

The views expressed herein are the views of the author and not necessarily the views of the employer.


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