Wolters Kluwer examines the readiness of financial institutions in managing the complexities of Basel IV in new whitepaper

The recent market turmoil and multiple banks’ collapse exposed the lack of regulatory scrutiny in some areas as well as the absence of standardized capital and regulatory metrics. But, according to a new whitepaper, “Integrating Pillars 1, 2 and 3: A Better Way to Basel IV,” from Wolters Kluwer’s Finance, Risk & Reporting (FRR) business, to stay solvent, financial institutions have to be decisive and take proactive decisions based on a comprehensive understanding of exposures, impacts and possible scenario outcomes.

While the Basel deadlines and risk and reporting requirements vary by region and jurisdiction, there has been consistency among the frameworks to make implementation and compliance easier. Furthermore, Basel practices will have to fit within existing supervisory architecture. For example, European institutions face more rigorous implementation challenges than their global peers as they must contend with a broad array of regulatory obligations in addition to Basel IV/CRR3 — well intended to guard and protect the ecosystem from procyclical excesses. In other instances, Basel standards are not mandated for institutions of a certain asset size, and such an approach has not been pleasant either.

Basel IV impacts all risks with an element of interdependency. “The demands of Basel IV in the treatment of each risk – the increased calculations required, additional types of calculations and analysis, and at greater degrees of granularity – are bound to be more puzzling, indeed, especially for banks that have not made the proper adjustments to their organizational and technological architecture,” says Xavier Dubois, Director, Product Management, Wolters Kluwer FRR.

“An enterprise solution that uses a common data source for all operations… [that] integrates both internal and regulatory metrics, enhancing insights and enriching each other, instead of challenging each other’s accuracy and meaningfulness — will enhance the consistency and efficiency of banks’ regulatory processes, demanding fewer resources and allowing smoother navigation through a highly regulated, competitive and ever-evolving financial system,” he concluded.

Basel IV and its principles of proportionality and interdependency, and all of the frameworks and requirements derived from them, call for a comprehensive, holistic approach to organization, operation and data. And the implementation challenges only reinforce this idea. Yet too many institutions continue to use atomized methods, maintaining independently acting silos for particular departments, or for discrete pieces of risk and performance, Dubois adds. Be it compliance work and reporting of Pillar 1 data, handling Pillar 2 stress testing and capital planning or Pillar 3 data disclosures, all are different facets of the same risk management function and should be consistent. This is where banks globally leverage OneSumX for Basel — a sophisticated software solution to manage the entire process from data integrity and lineage, through to finance and risk management and into regulatory calculators and reporting.

Wolters Kluwer FRR, which is part of the company’s Corporate Performance & ESG division, is a global market leader in the provision of integrated regulatory compliance and reporting solutions. It supports regulated financial institutions in meeting their obligations to external regulators and their own board of directors.