BASEL III is a regulation, which like many regulatory initiatives these days, brings both a ‘sigh’ yet the promise of an opportunity for change. BASEL III is one of those initiatives that cuts across the institution from front to back, left to right and forces the examination of assets, systems and procedures. As a result, the process of assessing readiness for BASEL III will likely magnify underlying problems in the infrastructure of the financial institution. The very act of trying to comply with a request for information will, ironically, heighten the lack of centralized system reporting for example, and therefore will inherently cause greater risk to an organization.</p> As a result, BASEL III, not unlike its predecessors SEPA, PSD2, Dodd-Frank, and yes the original BASEL accord, may have the unintentional benefit of bringing visibility to the complicated underlying infrastructure that inherently presents much risk. BASEL III may have the side benefit of starting a much needed renovation, if only in the form of a small step that initiates with BASEL III reporting, but ultimately is a first step in a much easier approach to subsequent regulation requests and innovation.</p> Monitor and manage</h4> Think “big payment data”. Not big data, but data in the form it is needed, right now. There are some highly advanced mechanisms available for performing liquidity management and risk assessment, but they are far from prevalent. Solutions are in place to manage the current position with the central bank, but bilateral positions with correspondents and precise throttling to control and manage positions throughout the day is not the standard. Real-time tracking of nostro positions, critical to manage liquidity in other currencies, is almost non-existent. Where this capability has been implemented, the solutions are centered on the systems where it has the most critical impact: the Real-Time Gross Settlement (RTGS) system. Here, the most sophisticated system is only as good as the data and transactions on which it has visibility. Here is where big payment data matters and can be extremely useful. To monitor and manage risk effectively requires: 1) a comprehensive reporting capability, and 2) proactive management.</p> Reporting</h4> Comprehensive reporting offers the ability to get a complete snapshot of data with ease. This means all sources of information are connected to facilitate a centralized view to understand the institution’s customers and correspondents, and generate a “snapshot” of their profile — credit risk rating, loan outstanding, etc. In effect, this is payments data mining. For example, a financial institution needs to understand the “illiquid” impact of counter-parties that they either provide liquidity to or that provide liquidity to the institution. This is part of the big picture of being able to forecast liquidity stress. It’s critical to understand the normal and abnormal patterns in order to monitor in real time against these. Reporting against historical data is the baseline for doing this.</p> Proactive management</h4> This category includes the ability to manage and schedule activity proactively, and the ability to adjust rapidly based on the data provided. Based on the cohesive data available, an institution should be able to effectively adjust to changing market conditions as indicated by historical data. An organization should have built-in circuit breakers so that payment systems will proactively adjust to changing and especially unanticipated conditions. For example, an alert should be generated if the position with a counterparty is trending downwards at unprecedented levels based on historical averages.</p> Reporting and proactive management are best achieved in an environment that is connected for these purposes. This does not imply that the systems all need to be tightly integrated, just that the information flows support the ability to produce such centralized access to information.</p> This brings us back to that small step. If with BASEL III an organization can take the step of connecting its data, whether through a centralized hub approach or integration with their central liquidity management system, the first step is taken toward realizing the power of big payment data.</p> BASEL III opens the door to leverage consolidated payments data while improving liquidity management. The byproduct of better tools to manage risk also offers an opportunity to enhance the customer experience with more comprehensive and timely information. Viewed this way, BASEL III can be the beginning of the steps towards an incremental renovation that offers a more responsive, transparent environment with benefits for both the financial institution and its customers.</p> </p> Article contributed by ACI Worldwide.</em></p> For more information download the whitepaper</a>.</p>