Risk Accounting research papersResearch Papers

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Thought Leadership in Risk Management

A compendium of JRMFI published editorials, commentary and book reviews authored by FIG principals. Copyright permission courtesy Henry Stewart Publications

2008 Vol 2, 1 Editorial: The financial crisis and operational risk management: Unfinished business - page 3
2011 Vol 4, 2 Commentary: Central counterparties – New uses for a century-old market mechanism - page 6
2011 Vol 5, 1 Book review: Report on Trading of OTC Derivatives of the Technical Committee of the International Organization of Securities Commissions - page 11
2012 Vol 5, 3 Guest Editorial: Special Issue - Systemic Connectedness: Measuring and managing Counterparty Risk (co-editors: Eduardo Canabarro, Til Schuermann, Eliza Hammel) - page 15
2012 Vol 5, 3 Book review: The Devil’s Derivatives - page 18
2013 Vol 6, 1 Opinion: Basel Committee’s fundamental review of the trading book: a commentary (co-authors: Kiran J. Fernandes, J. Steven Toms) - page 20
2013 Vol 6, 1 Book review: Governance Reimagined - page 23
2013 Vol 6, 2 Book Review: Bull by the Horns - page 24
2014 Vol 7, 3 Book review: Strategic Innovations in Risk Management - Compliance 1, Innovation 0 - page 26
2015 Vol 8, 2 Book Review: Risk Culture and Effective Risk Governance - page 28
2015 Vol 8, 2 Editorial: The FSB, BCBS and SIFIs: Partnership required - page 31

Independent Audit Assurance on Banks’ Capital Information

In this research note, we examine the role of independent assurance in post-crisis initiatives aimed at achieving financial stability and how this relates to current and proposed regulatory mandates. We draw comparisons with these regulatory developments and the US's Sarbanes Oxley (SOX) legislation, and similar legislation in other jurisdictions that were enacted with the aim of reducing the risk of material misstatements in financial reporting. We consider whether the role and responsibilities of auditors framed in SOX legislation should be extended more broadly to risk reporting.

In principle, we support an expanding role for accountants and auditors to adapt financial metrics and reporting to achieve more comprehensive and precise disclosure of accepted risks in audited financial statements. This represents both a risk quantification and an accounting challenge as regulators seek to more fully engage accountants and auditors in achieving greater financial stability while risk-adjusting the financial system.

Number of pages = 12

Number of Figures = none

Global Data Utility – Evolving the Central Counterparty for Data Management (CCDM)

One of the longest standing and intractable impediments to global straight-through-processing in the financial services industry has been the proprietary and non-standard nature of reference data. Regulators were made aware of this while rummaging through the collapsed 'basement' of Lehman Brothers and trying to determine who was Lehman, what was its financial exposure and who had been put at risk by Lehman's bankruptcy.

The CCDM is described in this research note as a global facility administered by a global standards setting body that assures the completeness, accuracy, security and accessibility of legal, client, instrument, contract and transaction identities and their associated reference data.  Its establishment is proposed as an industry sponsored, government regulated global standards setting body that maintains a virtualized distributed database connected through an intelligent secure federated network acting as a global repository of standard datasets for use in financial transactions.

The CCDM organizes and maintains standard product (Unique Product Identifier – UPI) and legal entity (Legal Entity Identifier – LEI) codes; transaction identification calculation algorithms; and data tags and reference datasets that are used in:  reporting financial transactions to regulators; in aggregating financial transactions; and in assuring settlement amongst counterparties.

The CCDM is the global center for managing and overseeing established and new data standards. The resultant datasets are registered and catalogued with the CCDM.

Number of Pages = 17

Number of Figures = 8

Gateway to the Barcodes of Finance

A global identification system, similar to the commercial barcodes, is being designed around regulatory mandates at the global level through the G20 and at the local level through sovereign market regulators. It is being coordinated through the Financial Stability Board, a standards body created by the G20 to instigate and coordinate regulations to stabilize the global economy.

The first implementation of this system is being tested for trading, reporting and clearing of swaps transactions. The intent is to observe the risk exposures associated with these transactions. The system has been inaugurated by requiring each counterparty and each financial supply chain participant in a swaps transaction to obtain a unique code, the Legal Entity Identifier (LEI). It is then intended that these codes will become associated with its parent or controlling entity.

It is planned to extend the LEI to all financial market participants involved in the supply chain of all financial transactions. In parallel, unique codes for instruments and contracts, the Unique Product Identifier (UPI), and the Unique Transaction Identifier (UTI) for observing an audit trail throughout a transaction's life cycle will follow a similar mandated trajectory, first for swaps transactions then for all financial transactions. The ultimate goal is to develop the electronic equivalent of the unique codes found in commercial barcodes – the 'Barcodes of Finance.' This would permit computerized data aggregation and matching of financial transactions for any specific firm, counterparty, contract, instrument or market and, ultimately for all  firms in all markets for global systemic risk analysis and straight-through-processing.

Number of pages = 29

Number of Figures = 10