An Integrated Approach to Meeting Regulatory Requirements

From MIKE2.0 Methodology

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In meeting regulations such as Basel, SOX, IFRS and AML, many organisations have struggled due to the complexity of their information management environments. Cost has been very high and approaches have often involved tactical measures that actually make the long-term environment more difficult to manage. Data Quality has been a particular issue. As regulatory requirements are becoming increasingly demanding, there is a need to get “out in front” with a better approach to the development of infrastructure and information. Those that do will be the winners in the coming years.

An Overview on Basel II

What is Basel II

Basel II accord is a set of risk management practices for financial institutions to track and publicly report their exposure to credit, operational and market risks.

The framework of Basel II is based on three pillars: Pillar 1 – This defines Minimum Capital Requirements for the financial institutions. The calculation of the minimum capital is based on the risks across the organization such as Credit, Market, Liquidity and Operational Risks. The Accord provides options for selecting the risk measurement approach. It varies from simple to advanced approaches depending on the complexity in capturing the input data. Pillar 2 – This provides for supervisory review of bank’s capital adequacy and internal risk measurement processes. National supervisors will be responsible for evaluating and ensuring that banks have sound internal processes to manage the capital adequacy and potential risks. Pillar 3 – This recommends greater transparency of risk management processes and the assessment of capital adequacy in the firm’s financial disclosure. Thus it mandates market disclosure of a financial institution’s risk profile and level of capitalization

With the Accord defining a structured and consistent approach to risk management, financial institutions will realize more consistent profits and reduced volatility of credit losses from existing business. In addition, they would realize an increase in profits in the form of lower provisions, consistent risk spreading, more effective deployment of capital, and loss avoidance.

Impacted Industries

Banking and Financial service institutions

Why Basel II Requires an Information Development Approach

The foundation to Basel II compliance infrastructure rests on information that can rightly identify the customer and assess the appropriate risks. In order to acquire and support this information, the organisation should enable an Information management strategy that would:

(a) Enable it to locate the relevant data across various operational systems with varied definitions (b) Enable it to source the located data from the disparate operational systems (c) Enable it to integrate the sourced data that vary in structure and standard into one universal repository with a single business definition (d)Enable generation of clean and complete data to feed the risk calculations, reporting and analysis needs (e)Enable storage and retrieval of high volume data in a manner that is optimized for analysis and reporting (f)Meet the QoS requirements

Typical High Level Business Requirements

Project Delivery using MIKE2

Key Components Required from SAFE Architecture

Applicable Activities from the MIKE2 Methodology

Best Practices for Implementation

Areas of Complexity

Applicable Software Solutions