1. Supportedby
Isriskbecomingtoocomplextomanage?
Examiningtheriskmanagementchallenges
facingJapanesefinancialinstitutions
AsummaryoftheJuly2ndHitachiConsultingRiskManagementForum July2014

2. Riskmanagementisbecomingmoredemanding
forallfinancialinstitutions.Ontopofthis,beinga
Japanesefinancialservicesprovider,doingbusiness
intheUKbringsanothersetofchallenges.
TheJulyRickManagementForum,
sponsoredandhostedbyHitachi
Consulting,andsupportedbyHitachi
EuropeandOracleexaminedthelatest
thinkinginriskmanagementaswellas
theuniquechallengesfacingJapanese
businessesintheUK.
TheForumwasheldon2ndJuly2014ina
chicandtranquilprivatestudiointheAndaz
Hotel,adjacenttoLiverpoolStreetstationin
centralLondon.Itwasthefirsteventofits
kindtoexclusivelyfocusonJapanese
financialinstitutionsinUK–andattracted
morethan40peoplerepresentingover20
Japanesecompanies.
Theevent’sexpertspeakersincluded:
■■ IsabelViegas,Director-Financial
ServicesEMEA,HitachiConsulting,
■■ PaulNewman-Horne,VicePresident
–StrategicDevelopmentand
RegulatoryReporting,BarclaysBank
■■ StephenSkrobala,SeniorDirector
–FinancialServicesEMEA,Oracle
Followingthepresentationsguestswere
abletoenjoysomedelicioustraditional
JapanesedishespreparedbytheMiyako
restaurantandaSakeTastingexperience
hostedbyMsNatsukiKikuyafromthe
MuseumofSake.
Regulatory
landscape
continuesto
becomeeven
morecomplex

3. Theneweraof
riskmanagement
andregulatory
reporting
IsabelViegas,DirectorFinancial
ServicesEMEA,HitachiConsulting
ThecreditcrisisundoubtedlyrockedtheUK
economyandhasleftalegacyofvolatility
anduncertaintyinthefinancialmarketsand
thewiderbusinesscommunity.Inan
attempttostabilizethesituationand
preventitfromhappeningagain,the
regulatorylandscapecontinuestobecome
evermorecomplex,stringent–and
intrusive.Riskmanagementsimplycannot
beignoredandisnowacentralboard-level
issueineveryfinancialorganization.
Sowhatarethekeyrisk
managementchallengesfor
businessesoperatingintheUK?
■■ Thespeedofregulatorychange
Newlegislationandregulatory
requirementsarearrivingatapacethat
makesthemdifficulttomanage.Major
changesareoccurringsimultaneously
inLiquidity,Supervision,Capital,
GovernanceandConduct.Thisis
puttingalotofpressureoncompanies,
mainlyintheareasofRegulatory
Affairs,SeniorManagement,ITand
Infrastructureandotherkeyfunctions,
likeRisk,FinanceandTreasury.
■■ Changesinoperatingmodel
Businessesarebeingdriventomake
organizationalchangestocopewith
thedemandsofmultiplelocaland
internationalregulators.Assetsare
beingsplit,withasignificantfocus
onseparatingRetailandInvestment
bankingactivities,withthecleargoalof
reducingthesizeofthebalancesheetto
avoidinstitutions“toobigtofail”.New
CapitalrequirementsandnewLiquidity
Ratiosarere-shapingkeyareas,such
asstrategy,productsdevelopment
andpricing.Thesechangescreatenew
challengesforthe
FinancialInstitutions:
–– Whichbusinessesshouldbedivested?
–– Howtoreturntoacceptable
levelsofRoE?
–– Howtomaketheseresultsconsistent?
Thesearethequestionsthatallthe
FinancialInstitutionsaretryingtoanswer
onadailybasisasriskmanagementwill
bethecenterpiecewhilerunninga
Financialservicesbusiness.
■■ Reportingrequirementshaveincreased
exponentiallyinlinewithnewregulatory
requirements.RiskUnitsrequire
timelyandcomprehensivedataand
itisessentialthattheyhavetheability
toqueryanddoad-hocanalysis.
Itisthetimetoseetheregulatory
requirementsnotonlyasamandatory
requestthatFinancialInstitutionsmust
complywith,butasanopportunity
toembedtheseontheday-to-day
managementandtakeadvantageof
alltheinformationanddataavailable.
Therevolutioninriskmanagementishere
tostay.TheFinancialInstitutionsthatcan
successfullycopewithallofthese
challengeswillbetheonesthatareagile
andcanquicklyadapttoanynew
requirements.Andthatmeanshavinggood
qualitydatabuiltonacomprehensiveand
flexibledataplatform,sothatitisauditable
andaccessibleandcapableoffeeding
analytics,controlandreporting,butstill
givesyouthe“bigpicture”tohelpdrive
businessstrategyandenableincreased
competitiveness.
“Overthelastcoupleof
years,riskmanagershave
beenspendingupto70%of
theirtimeonregulations.”
UKsubsidiaryofaJapaneseBank
EvolutionofprofitabilityinBanks Data
framework
Recentexampleof
regulatorydemands
(datasource:ECBConsolidatedBankingdata2013)

4. Thechallengesof
compliancewith
different
regulatory
demands
PaulNewman-Horne,VicePresident–
StrategicDevelopmentandRegulatory
Reporting,BarclaysBank
Theonslaughtofregulatorychangeis
neverending–thenumberofapplicable
lawsandregulationsisinthetensof
thousands.Andthingswillonlyget
worse.Especiallyasregulatorsnow
performregularstress-testactivitiesand
arealsodemandingpropriety,
transparency,betterriskmanagement
and,perhapsmostimportantofall,
accountablegovernance.
Soitisclearthatthesituationformany
compliancefunctionsisextremelyserious.
MoreDATAisrequired,morestandardized
anddetailedCALCULATIONSareneeded,
moreREPORTSwillbegeneratedand
electronicSUBMISSIONSviaXBRLwillbe
required.Reportingisalsobecomingmore
granular,thereismoreemphasison
benchmarkingandindustryinitiativessuch
astheEDTF(EnhancedDisclosureTask
Force)areaimedatcreatingamore
standardizedwayofreporting.
Attheheartofallofthisliestheneedfor
high-qualitydata.Forexample,inBarclays’
recentCOREPsubmissiontherewere29,000
datapointsidentified.Sounlessyourdatais
accurateyousimplycannotbesurethatthe
propercontrolsarebeingappliedtothe
rightpiecesofdatatocomplywiththe
appropriateregulations.Poordatacould
alsoresultinPRASection166reviewsbeing
required–withanestimatedcosttothefirm
ofupto£1millionormore.
Buildingconstraintsintothedatabasecan
improveoveralldataquality,aswellas
definingreferentialintegrityinthe
database.Dataprofilingtechnologycan
alsobedeployedtodiscoverthequality
andcharacteristicsofinformation,and
dramaticallyreducethetimeandresources
requiredtofindproblematicdata.
However,gooddatagovernanceisabout
morethanjustregulatorycompliance.If
managedcorrectly,takingintoaccount
processes,policies,reportsand
organizationalstructure,itcanbringother
benefits,suchasgreaterefficiency,
visibility,costsavingsandawealthof
customerinsightsthatcandriveimproved
servicedeliveryandcompetitiveness.
Creatingarobustyetadaptabledata
managementstructureisessentialforthe
effectivedatagovernanceand
consolidationneededtoensureregulatory
compliance.Butitisalsovitalthatyouhave
“GoldenSources”ofinformation–ora
“SingleSourceofTruth”(SSOT).
AgoodEnterpriseDataManagement(EDM)
modelallowsyoutocollect,standardize,
consolidateandmanageinformationabout
securities,products,customers,
transactions,andotheroperations,soitcan
beusedbydifferentbusinessapplications.
Ofcourse,therealityisthatmany
organizationshavemultipleinformation
systems,eachofwhichneedsaccesstodata
relatingtothesameentitiese.g.customers,
soothertechnologiesarecommonlyused
tocreateaSSOT.
However,it’snotjustabouthavingastrong,
stateoftheartdatastructure.Youwillalso
needtoensurethatthereisageneral
businessappreciationoftheneedfordata
quality,effectiveandtransparentbusiness
processes,andseniormanagement
accountabilityfordataqualityand
governance.
“Regulatorshaveno
intentionoftryingtomake
iteasyforustounderstand
howvariousregulations
relatetooneanother.”
UKsubsidiaryofaJapaneseBank
Theneed
forhigh-
qualitydata

5. Thebusiness
benefitsofa
comprehensive
riskarchitecture
StephenSkrobala,SeniorDirector–
FinancialServicesEMEA,Oracle
Whenitcomestocreatingarisk
managementarchitectureoneofthemost
importantthingsishowyoubringrisk
together,sothatit’smanagedinstitutionally
ratherthandiscretely,withpocketsofrisk
acrosstheorganization.Therearemany
differenttypesofrisk.Forexample,riskfor
tradingtransactionsisdifferenttocredit
risk,marketrisk,andinterestraterisk.Some
willbuildupovertime,whileothersare
moreimmediate. Youcanneverfully
eliminatethoserisks,butifyouunderstand
themyoucanmitigatethem.
Ideallybankswouldhavea“dashboard”to
monitoralltypesofrisks.Whilethatisa
nirvanastate,it’samodelandavisionthat
youcanworktowards.Youcanhave
differentriskmodelsanddifferent
measurementsofrisk,andyoucantrytoput
thoseintoanarchitecturethatbuildsupto
createawaythatenablesyoutolookatthe
overallstructureofriskfromanenterprise-
wideperspective
Akeyareaisdataquality.WhenBASELII
cameoutmanybanksinvestedinvery
sophisticatedriskmanagementsystems,
buttheynevermadetheinvestmentin
dataquality,sotheywereonlyabletoget
tothewronganswerquicker!Foreffective
riskmanagementyouneedtobreakthe
datadown,soeachtransactionhasits
ownspecificinformationandvalues
associatedwithit.
Ifyoudon’tgetitrightatthestartandcreate
a“SingleSourceofTruth”thenyouendup
reconcilingdataandthat’smuchmore
time-consuming,costlyandresource
intensive.Youalsoneedwaysof
aggregatingandcheckingallofyourdata,
sothatyoucandoproperreportingonitfor
anyrequirements.Thisisn’tastrictly
technologyprocess–thereareother
businessrulesneededtovalidatethe
qualityofthedata.Soyouhavetotakeinto
accountcertainriskmanagement
parameters,suchascredit,market,liquidity,
operationalandmodelrisk,andalsofactor
intheneedforregulatorycompliance,so
theremaybeadditionalinformationthat
needstobecapturedthatgoesbeyond
pureriskmanagement.
Usingthecapture(staging),enhance
(processing)andreassemble(reporting)
approachwillenableyoutousedatain
variouswaysfordifferentaudiences,such
COREPandFINREPreportingorstatutory
reportinglocallyorbacktotheparent
company.Youshouldalsobeabletotake
thosereportsanddrilldownintothe
appropriatelevels,sothatmanagementcan
sharethatinformationwiththerelevant
businessunits.Becauseit’sonlywhenthat
informationcanbeacteduponthatit
becomesuseful.Inotherwordsyouneedto
beabletointelligentlyidentifytheproblem,
understanditandputinplacethecorrective
action.
“Thekeyistoachievetherightbalancebetweencovering
awidersetofrisksandgettingtherightamountofdetail…
tomakesurenothingslipsbetweenthegapsandalsothat
enoughdepthisunderstoodataseniorlevel.”
UKsubsidiaryofaJapaneseBank
Reassemble(report)
Capture(stage)
SingleSourceofTruth
Enhance(process)
Dashboard
Data
Repositories
CreditRating
Systems
Qualitycheck
Operational
Systems
Reconciliation
MarketData
Sources
Adjustment
General
Ledger
RiskModeling
Regulatory
Reporting
Risk&Performance
Measurement
DynamicAnalytics
AdvancedRisk
Solutions
Internalbusiness Regulatoryagencies Market
ReportingArchitecture
DataArchitecture
RiskArchitecture

6. Theunique
challengesfacing
Japanesefinancial
institutions
ShinjiKamata,Senior
Manager, HitachiConsulting
Theriskmanagementchallengesfor
financialorganizationsaresubstantial
andconstantlyshifting.ForJapanese
businessesoperatingintheUKthe
challengeisevenmoreextreme.Notonly
areUKregulationsthemoststringentin
theworld,andfarmoredemandingthan
whatparentcompaniesarenormally
usedto,buttheUKsubsidiariesalsoface
significantoperational,culturaland
managementissues.
Ontheoperationalsideofthings,the
legalstructurehasasignificanteffect,
becausebeingclassifiedasaSubsidiary
orBranchdoesaffectexactlyhowmuch
youaregovernedbylocalregulations.
ThedegreeofdependenceonHQ
systemscanalsodeterminehowmuch
autonomyyouhavetoactorwhether
youaredirectlygovernedfromJapan,as
youmaynotevenhavesufficientdata
granularitytooperateeffectively.
Ifthebusinesswasacquired,ratherthan
set-updirectlybytheparentcompany
thenthepeople,processesandsystems
thatwereinheritedwilltendtogiveyou
moreautonomy,butthismayalsoleadto
incompatibilitiesthatcauseproblems
reportingbackandensuringcompliance
toregulations.
Itisalsoimportanttounderstandexactly
whattheroleandexpectationsoftheHQ
are.Dotheywanttohaveastronginput
intothegovernanceofthebusiness?Oris
theremuchscopetointerpretandapply
HQpolicylocally?ThenatureoftheUK
businesswillprobablyalsodictatewhat
riskstheoperationneedtomanage,based
onthetypesofcustomere.g.whether
theyareretailorcorporate,localor
Japanese,thetypesofproductse.g.
derivativesorprojectfinance,andalso
wherethedealsarebookede.g.locallyor
inJapan,andwhetheryouneedtoworry
aboutpossiblesystemerrors.
Culturallytherearesomeimportant
considerations.Inparticular,expectations
onwhatis“goodenough”mayvary,which
cancreateinternalconflict.While
regulationsinJapanarenotasstringentas
theUK,anynon–complianceisperceivedas
havingaheavyreputationalrisk,sothe
parentcompanymayexertpressureto
striveforperfection,butthisobviously
entailsacostthattheUKoperationmaynot
bepreparedtopay.It’salsoworthnoting
thattheremunerationsystemsineach
countrywilldrivedifferentbehaviors,so
westerntradershaveadifferentrisk
appetitetothoseinJapan.
Finally,thereislikelytobeaneedtoconduct
dualreportingforregulatorycompliance.
Soaswellasmeetingtheneedsoflocal
authorities,theUKbusinesswillhaveto
providewhattheHQneedstosatisfythe
Japanesefinancialauthoritiese.g.stress
testinginJapanmayrequiredifferentdata
setstotheUK.
Inalloftheseareaseffectivegovernanceof
dataiscrucial,becausewhethertheUK
businessoperatesautonomouslyorifmore
closelygovernedatagloballevelbytheHQ,
thesamedatapoolwillbeusedtomeetthe
requirementsofbothpartsofthe
organization.
However,becausetheUKisoperatingunder
themoststringentregulatoryconditions,
thegoodnewsisthatthisalsomeansthat
thereisanopportunitytosetthebest
practicestandardwithintheorganization.
SotheUKoperationcanbecomethe
“knowledgecentre”forregulatory
compliancewithinthegroup–andcanhelp
createarealcompetitiveadvantageforthe
entirebusiness.
“Riskmanagementisno
longerseenasanextension
ofinternalaudit,butasan
educationalrolewithinthe
organizationtoestablish
competitiveadvantagefor
thebusiness”
Bridging
Japanese
businesswith
theUKmarket

7. Summary
HitachiConsulting’sRiskManagement
forumexaminedthekeyriskmanagement
challengesrelatingtofinancialregulatory
reportingintheUK.Thediscussionwas
broughttolifewhentheaudiencewereable
tohearaboutthepracticalchallengesfaced
byBarclaysanditsapproachtomeetingthe
company’sreportingrequirements.This
highlightedthatthekeyfactorin
overcomingmanychallengesofrisk
managementisthequalityofdata,interms
ofitsarchitecture,accuracyandgranularity.
However,whilemostcompaniescanrealize
immediatebenefitsbyputtinginplacethe
rightdataarchitecture,havingtheright
ethosforriskmanagementisalsovery
important–andcanbethedriverforoverall
businessimprovementandgrowth.Each
businessneedstobeclearaboutthescope
ofthedifferentrisksitaimstocoverand
howproactiveandholisticitwantstobein
thewayitmanagesrisk.
Ofcourse,thequestionthenishow
shouldJapanesefinancialinstitutionsin
theUKgoaboutachievingtheirvisionof
riskmanagement,giventheuniquesetof
challengestheymustaddress,whichgo
aboveandbeyondthosefacedby
westerninstitutions?
AsaglobalJapanesecompany,Hitachiis
veryfamiliarwithchallengesofachieving
resultsinalocalmarket,especiallyinthe
faceofrigorousEuropeanregulations,
whilealsosatisfyingtheneedsofthe
parentcompany.HitachiConsultingalso
hasconsiderableexpertiseandcapabilities
inthemanagementofriskandcanprovide
helpintheareasofregularityreporting
processandapplications,system
architectureanddatamodeling,system
anddatasecurityandtheuseofBigData.
Finally,fromtheperspectiveofwider
spectrumofriskmanagement,theforum
didnotcovertopicsrelatedtooperational
risks,includingsystemsrisksandemerging
risks.HitachiConsultingwillprovidefurther
insightsintotheseandotherareasinfuture
Forumevents.
Todiscoverhowwecanassistyourorganizationortoreceive
informationaboutforthcomingeventspleasecontact
financialservicesEMEA@hitachiconsulting.com

8. HitachiConsultingistheglobalmanagementconsultingandITservicesbusinessofHitachiLtd.,aglobaltechnologyleaderandacatalystofsustainablesocietalchange. Inthatsamespirit-andbuildingonitstechnology
heritage-HitachiConsultingisacatalystofpositivebusinesschange,propellingcompaniesaheadbyenablingsuperioroperationalperformance. Workingwithintheirexistingprocessesandfocusingontargetedfunctional
challenges,wehelpourclientsrespondtodynamicglobalchangewithinsightandagility. Ouruniqueapproachdeliversmeasurable,sustainablebusinessresultsandabetterconsultingexperience.
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