13 Jan 2009, Victoria Pennington , Operational Risk & Regulation
ARMINK, NY - In response to an industry-wide need for standardisation of risk data, the IBM Data Governance Council is seeking input from banks and financial institutions, corporations, vendors and regulators to create a standards-based approach to risk reporting.
"One of the things IBM has been looking at very closely is how to build better standards for measuring risk in financial services firms," says Steve Adler, chairman of the IBM Data Governance Council. "Last July, when the first hedge funds started to go under and the Federal Reserve started to cut interest rates, we realised this would be a significant crisis that would present an opportunity to address much-needed reforms."
Financial services firms, as well as regulators and other market participants, have inconsistent methods and language for disclosing operational, market, and credit risk. These inconsistencies, the IBM Data Council says, make regulatory oversight both difficult and complex. It believes the first step to enabling new transparency of risk and exposures in the financial services industry is semantic clarity - a precise method for consistently describing and reporting risk across all organisations.
The council is exploring the use of Extensible Business Reporting Language (XBRL), a software language for describing business terms in financial reports that already has widespread adoption and use through regulatory mandate around the world, as the council believes it contains the basic building blocks the industry could use to develop a consistent reporting standard.
"This is a great starting point for looking at adoption of a new risk reporting standard," says Adler. "The reporting is only part of the process however; there is also a need for standards in the way the reports are calculated, how the information is collected and what the reports are for. All these things require an industry-wide dialogue, and by proposing a standard and linking it to the excellent work done with ORX, we are challenging people to think differently about risk and reporting."
According to the Council, an XBRL Taxonomy of Risk could serve as a fundamental building block to enable interoperability and standard practices in measuring risk worldwide. It is seeking proposals and discussion on this topic to help drive a year-long effort to create a proposed specification for XBRL for risk reporting
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