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P1.T1.511. Principles for risk data aggregation: governance

Nicole Seaman

Director of FRM Operations
Staff member
Subscriber
Learning outcomes: Explain the potential benefits of having effective risk data aggregation and reporting. Describe key governance principles related to risk data aggregation and risk reporting practices.

Questions:

511.1. Among the Basel Committee's Principles for effective risk data aggregation and risk reporting, Principle 2 is "Data architecture and IT infrastructure: A bank should design, build and maintain data architecture and IT infrastructure which fully supports its risk data aggregation capabilities and risk reporting practices not only in normal times but also during times of stress or crisis, while still meeting the other Principles." The principle includes paragraph 33, where two terms have been replaced with "[keyword #1]" and "[keyword #2]":

"A bank should establish integrated data [keyword #1 here] and architecture across the banking group, which includes information on the characteristics of the data--i.e., [keyword#2 inserts here]--as well as use of single identifiers and/or unified naming conventions for data including legal entities, counterparties, customers and accounts." The first keyword, [keyword #1], refers to the categorization or classifications of data; for example, market risk and credit risk are categories of risk. The second keyword, [keyword #2], refers to information about the data."

Which terms correctly replace, respectively, [keyword #1] and [keyword #2]?

a. aggregation and principles
b. capabilities and architecture
c. taxonomies and metadata
d. timelines and accuracy


511.2. Among the Basel Committee's Principles for effective risk data aggregation and risk reporting, Principle 5 is "Timeliness: A bank should be able to generate aggregate and up-to-date risk data in a timely manner while also meeting the principles relating to accuracy and integrity, completeness and adaptability.

The precise timing will depend upon the nature and potential volatility of the risk being measured as well as its criticality to the overall risk profile of the bank. The precise timing will also depend on the bank-specific frequency requirements for risk management reporting, under both normal and stress/crisis situations, set based on the characteristics and overall risk profile of the bank. 45. The Basel Committee acknowledges that different types of data will be required at different speeds, depending on the type of risk, and that certain risk data may be needed faster in a stress/crisis situation. Banks need to build their risk systems to be capable of producing aggregated risk data rapidly during times of stress/crisis for all critical risks"

Critical risks include each of the following EXCEPT which is not a critical risk?

a. credit exposure to a large corporate borrower
b. Trading exposures
c. Liquidity risk indicators
d. Legal settlement probabilities


511.3. Consider the following set of definitions used in "Principles for effective risk data aggregation and risk reporting:"
  • Accuracy: Closeness of agreement between indications or measured quantity values obtained by replicating measurements on the same or similar objects under specified conditions.
  • Adaptability: The ability of risk data aggregation capabilities to change (or be changed) in response to changed circumstances (internal or external).
  • Approximation: A result that is not necessarily exact, but acceptable for its given purpose.
  • Clarity: The ability of risk reporting to be easily understood and free from indistinctness or ambiguity.
  • Completeness: Availability of relevant risk data aggregated across all firm's constituent units (eg legal entities, business lines, jurisdictions, etc)
  • Comprehensiveness: Extent to which risk reports include or deal with all risks relevant to the firm.
  • Manual workarounds: Employing human-based processes and tools to transfer, manipulate or alter data used to be aggregated or reported.
Each is stated accurately, EXCEPT which is incorrect?

a. Accuracy
b. Approximation
c. Clarity
d. Comprehensiveness

Answers here:
 
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