IBM Data Governance Council Leads XBRL Initiative to Create Reporting Standards for Risk Measurement
December 19, 2008 // Published as a news service by IHS
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To provide businesses worldwide with tools for measuring aggregate risk in the financial world and provide a real-time view of market exposure, the IBM Data Governance Council is seeking input from banks and financial institutions, corporations, vendors and regulators to create a standards-based approach to risk reporting.
Today, organizations have inconsistent methods and vague language for disclosing operational, market and credit risk, IBM said. These inconsistencies make regulatory oversight difficult and complex.
The first step to enabling new transparency of risk and exposures in the financial services industry is semantic clarity - a method for describing and reporting risk across all organizations.
According to IBM, such transparency could provide a new macro-economic tool and greater fiscal accountability for regulators, investors and Central Banks worldwide, making it easier to identify toxic assets on the books, mitigate fraud, prevent wide-scale fiscal crisis and rebuild confidence in financial systems.
The IBM Data Governance Council is exploring the use of extensible business reporting language (XBRL), a software language for describing business terms in financial reports, in risk reporting.
XBRL could be used to provide a nonproprietary way of reporting risk that could potentially be applied worldwide. It is already used for financial reporting throughout Europe, Australia and Japan.
"Creating a risk taxonomy using XBRL will provide a vocabulary and a common language allowing everyone to understand what risk means, and that's the first step in making it easier to calculate and report," said Steve Adler, chairman of the IBM Data Governance Council.
"When we have semantic clarity around the way organizations describe risk, incidents, events, losses, claims, exposures, forecasts and reserves, it gets easier to aggregate loss information, analyze it with standard actuarial methods, compare past exposures to present conditions and opportunities and forecast potential outcomes," Adler said.
According to the council, an XBRL taxonomy of risk could serve as a fundamental building block to enable interoperability and standard practices in measuring risk worldwide. Such standards could enable central banks to manage vast databases of loss history and trend analyses that could better inform policy-makers and member banks helping to minimize risk and produce better returns, IBM said.
"XBRL is gaining widespread adoption among global capital markets, banking and securities regulators and plays an important role in market reforms by contributing to transparency and process enhancements," said Anthony T. Fragnito, chief executive officer, XBRL International Inc.
The council is seeking proposals and discussion on this topic to drive a yearlong effort to create a proposed specification for XBRL for risk reporting. Initial discussions about this specification will take place Feb. 26-27, 2009, in New York City.
"This is an opportunity for both improving the effectiveness of the risk management function and the quality of reports," said Dan Schutzer, executive director of Financial Services Technology Consortium.
"XBRL for risk reporting also holds the potential for cost reduction through the development of consistent, clear and comprehensive reporting standards," he said.
Source: IBM.