RiskBusiness International launches all-new risk taxonomy

RiskBusiness International Limited, one of the leading international operational risk advisory and solutions firms, has announced the release of a new risk classification taxonomy which differs significantly from the “ageing Basel II loss event-type structures”.

In the wake of winning industry awards for the various iterations of governance, risk and compliance classification taxonomies the company has created over the past decade, RiskBusiness International’s new RiskBusiness taxonomy – dubbed the RiskBusiness Banking Taxonomy Variant 4 – reflects three major changes from previous taxonomies.

Those changes are a completely remodelled risk category framework differing markedly from predecessors which all retained links to the Basel II loss event-type structure, a granular, multi-level causal-type model and a new granular control-type structure.

Additional enhancements have been made in the arrears of process types, direct and indirect impact types and also recovery types. There’s also the addition of a new exposure driver hierarchy.

“One of the most persistent challenges facing any firm is the consistent classification of the risks they face and the losses they’ve experienced,” explained RiskBusiness International’s CEO Mike Finlay.

“The ageing Basel II loss event types were perhaps considered ground-breaking back in 2000, but of all the risk types, operational risk and compliance is the one area where new forms of risk are continually emerging. This necessitates ongoing re-investment into classification structures. Add to this the continual problems that business people experience in trying to understand the ‘risk-speak’ of the Basel II loss event types and it’s little wonder that many internal loss event databases and risk registers contain classification garbage.”

Mike Finlay: CEO at RiskBusiness International

Mike Finlay: CEO at RiskBusiness International

These sentiments are echoed by Tom Edwards, head of operational risk at Jefferies International (a long-standing subscriber to the RiskBusiness Taxonomy Service).

“We had started to go down the route of simplifying the 7 Basel risk categories when RiskBusiness beat us to it with its latest Banking Variant 4,” explained Edwards. “Although some senior management figures have become familiar with the long-standing Basel categories, there are also many more that question its suitability. In a nutshell, we needed a risk hierarchy that was easy for classification purposes and that grouped risks intuitively on reports. Too many meetings were being side-tracked away from real risk management issues towards: ‘What does Clients, Products and Business Practices mean?’.”

Edwards continued: “With the emergence of the term ‘Conduct Risk’ confusing matters even further, it was also important to show that this is still considered under Operational Risk. Therefore, the re-labelling of CPBP was necessary.”

Mapping of taxonomies

The RiskBusiness Banking Taxonomy Variant 4 joins its predecessors, which include several insurance taxonomies, financial services enterprise risk taxonomies and other, non-financial services taxonomies in the web-based RiskBusiness Taxonomy Service.

This is a subscription-based service available to firms, vendors and other interested parties. Subscribers can browse the various taxonomies provided, use components of different taxonomies to assemble their own taxonomy or can create their own bespoke taxonomy from scratch and then map that taxonomy to any of the other industry taxonomies provided.

“Where a subscriber is also a member of an industry initiative like bbaGOLD, ORIC International or Indonesia’s KDKE data consortium, that subscriber can map their own taxonomy to the relevant taxonomy of those initiatives that they are part of and then automatically translate data between the different ‘languages’ or taxonomies using the mapping rules,” added Mike Finlay. “This allows a firm to manage its data in structures that work internally, yet still comply with regulatory requirements – such as the European COREP reporting requirements – with minimal manual intervention.”

Each element of the taxonomy hierarchies supported by the RiskBusiness Taxonomy Service is accompanied by detailed descriptions of what they mean, clear qualification rules around what’s included and expressly excluded from each element and a set of key words used for automated searching and classification purposes.

*Companies interested in learning more about the RiskBusiness Taxonomy Service are advised to visit the RiskBusiness website at: http://www.RiskBusiness.com

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