Basel III Reform

Canada, October 2022

OSFI’s revised Capital Adequacy Requirements (“CAR”) Guidelines and new BCAR templates are coming into effect starting Q2-2023. With only a few months left to prepare, firms are under pressure to make sure they are compliant. The updates involve a significant number of changes to standardized risk weights, increased granularity of asset classes, new Operational Risk calculations and a complete revamp of BCAR templates. Despite the initial draft version being released by OSFI back in spring 2021, and the additional one quarter implementation delay to Q2 2023 announced in November 2021, many banks find themselves at a time crunch, scrambling to make all the changes needed.

Quality, accurate, and granular data is a key component in achieving and maintaining compliance. Being able to take advantage of better risk weight treatment can only happen if you have the supporting data, otherwise less than optimal risk weight assignments get applied. With increased number of BCAR schedules and asset classes, banks struggle to further classify their exposures to proper exposure classes. Shifting through the data is the first step before any capital calculations and reporting validation can be done.

Is there an easier way? If so, how much time would it take to clean up the data to meet all the required Basel III reform changes by Q2 2023 deadline?

Data Standardization
First, firms must ensure their data is standardized. Leveraging a data standard will unify all the regulatory and reporting requirements within the organization. Without this, firms are faced with difficulties when mapping data from various sources to the required input data format to meet a specific calculation or reporting requirement, and when requirements change through time, this will result in re-mapping. The lack of data standardisation is one of the major reasons why some organizations are behind.

Simplified Data Requirements
With changes in regulations, numerous calculations and reporting requirements, data dictionaries can become bloated, making them difficult to navigate and manage. Instead of time spent analyzing the impact of the changes on capital for example, an organization will spend copious time determining if they have the data available or how they can derive just to meet the new reporting requirements.

Regulatory harmonisation through FIRE (Financial Regulatory Data Standard)
Establishing a well-defined and well-governed data dictionary with a few simple principles can eradicate the “devil in the bad data” and create good data. FIRE, the open-source data standard that structures Basel III data by organizing financial institutions’ data in accordance with applicable regulatory and accounting requirements, is a unique and powerful tool that drives regulatory harmonisation. The FIRE data standard has been recognized by the World Economic Forum as a Global Innovator and is trusted by institutions including the European Central Bank, the Federal Reserve Bank of New York, and the Bank of England. Furthermore, FIRE has gathered input from hundreds of financial firms, leveraging the Wisdom of the Community as institutions use it to better define, analyze, and report on their key financial and regulatory metrics.
FIRE was built on the premise of defining data once and re-using. As a result, it includes approximately 400 different attributes and Suade has built more than 10,000 Logic Blocks that can be re-used across multiple calculations and reports. Changes in regulatory requirements shouldn’t mean you need to remap data.

FIRE by Example
Basel III reform has introduced the concept of “transactor”, a sub-class of QRRE. Other vendors or data dictionaries may require the financial institution to do the leg work to pre-identify or split up their QRRE into transactors or revolvers before ingestion, forcing the institution to maintain the mapping and search the source systems to see if they have the required input to determine this new categorization. With FIRE, no new mapping is needed! Taking the legal definition of “transactor” (from CRE20.64, CRE 30.25 or OSFI CAR Chapter 4 P84 and Chapter 5 P28), the Suade solution is able to derive the required categorization from already mapped fields of facility or product type and the amount of drawdowns or total monthly balance paid off over the year.

The Result
This is the power of FIRE and Suade! Simplifying the number of inputs required, minimizing the on-going maintenance burden, reducing implementation timelines and increase regulatory reporting efficiency. Further to the upfront savings of cost and time, the ongoing result is a less labor-intensive platform which enables the institution to be nimble and react to regulatory change. Over the long term, the Suade platform has proven to lower total cost of ownership be over 50% compared to other platforms in the space.

Suade
Suade is a RegTech firm that delivers a data-driven platform with artificial intelligence (AI) and the only global open-source Financial Regulatory Data Standard (FIRE) to enable risk and regulatory reporting.

To get your BCAR ready for Basel III Reform changes in Q2 2023 and discuss your risk and regulatory reporting needs, please contact us on info@suade.org.