15 January 2014

FSB: Senior Supervisors Group Progress Report on Counterparty Data

Observations in this report indicate that firms' progress toward consistent, timely and accurate reporting of top counterparty exposures fails to meet supervisory expectations, as well as industry self-identified best practices.

The Progress Report on Counterparty Data is a result of the insight and experiences gained from SSG’s counterparty exposure data collection programme known as the “Top 20” Counterparty project. Launched in late 2008 in response to the financial crisis, the project was intended to provide supervisory authorities across jurisdictions with information about large firms’ exposure to each other and to common counterparties, and enhance the ability of firms to produce quality counterparty information. In March 2013, the Top 20 project transferred to a more comprehensive programme administered by a new International Data Hub at the Bank for International Settlements. 

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Conclusion - There is much room for improvement

The “Progress Report on Counterparty Data” provides a valuable update on supervisory efforts to improve counterparty credit risk management in large, systemically important financial institutions. It comes on the heels of five years of Top 20 Counterparty report production and the successful transition of project management from the SSG Secretariat to the BIS International Data Hub. As the SSG outlines in this report, while firms have made progress in certain key areas of counterparty risk management, on the whole current practices fail to meet supervisory expectations or industry self-identified best practices for timely and accurate reporting of top counterparty exposures.

Firms’ difficulties producing the Top 20 Counterparty report accurately and on time may reflect their inability to aggregate exposure to all counterparties. While some firms involved in the project met all supervisory expectations for timeliness and frequency, data aggregation capabilities, and data quality, others failed to make as much progress as expected.

Going forward, supervisors will expect firms to continue to devote time and attention to the infrastructure necessary to aggregate and update exposures accurately and in a timely manner. This includes the ability to thoroughly review data quality and trend analysis to identify data anomalies. Attention is even more critical now, given the evolution from the Top 20 to the Top 50 Counterparty report, which is challenging firms to provide exposure data on a more granular and precise basis.

Firms should continue to prioritise controls and governance even in times of relatively well-functioning and stable markets. They should integrate recurring regulatory requests, such as completing the Top 20/Top 50 Counterparty reports, into their ongoing risk management control process, rather than view these reports as “one-off” requests outside the scope of ongoing risk management.

Finally, supervisors must make it a high priority for the firms they oversee to aggregate and report exposures in a timely and accurate fashion. Neither supervisors nor firms should lose sight of this critical piece of risk management, particularly as memories of the financial crisis begin to fade.

Full report

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Banks fail to meet trading data standards, global regulators say

The world’s biggest banks must give a better account of what financial products they trade and who they trade them with, a group of global regulators said today. About a third of banks surveyed failed to produce weekly trading reports that met regulatory standards, according to a report from the Senior Supervisors Group. Banks in the European Union “still struggled to meet the standards", while Canadian lenders “led all peers” the group said.

Regulators must “commit to impressing upon firms the importance of being able to quickly and accurately aggregate top counterparty exposures", the group, comprised of regulators from countries including the US, Switzerland and Japan, said in a letter to Mark Carney.

"If firms cannot produce accurate data during relatively benign times, they would be unlikely to do so during periods of market stress when exposures could be volatile and resources are operating under high-pressure conditions", according to the group.

Further reporting © Bloomberg

© FSB - Financial Stability Board