The Importance of Data and IT for a Strong Risk Culture

Darren Smith and Andrew Cross

To support effective risk governance and a strong risk culture, good information on the amount of risk being taken is essential. Without good data and supporting IT, risk transparency would not be sufficient to enable senior management to manage risk effectively and react appropriately to risk-taking behaviour. It will also mean that incentives are not adjusted properly. However, this is also a two-way street; in cultures where risk is not given much weight, the pressure for internal transparency of risks is also less.

The 2007–08 financial crisis highlighted serious shortcomings and variations in capabilities across the banking industry.

One of the most significant lessons learned from the global financial crisis that began in 2007 was that banks’ information technology (IT) and data architectures were inadequate to support the broad management of financial risks. Many banks lacked the ability to aggregate risk exposures and identify concentrations quickly and accurately at the bank group level, across business lines and between legal entities. Some banks were unable to manage their risks properly because of weak risk data aggregation capabilities and risk reporting practices.

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