August 26, 2014 - RiskBusiness International Limited, the leading international operational risk advisory and solutions firm, today announced the release of a new risk classification taxonomy which differs significantly from the aging Basel II loss event type structures.
Having won industry awards for the various iterations of governance, risk and compliance classification taxonomies it has created over the past decade, the new RiskBusiness taxonomy, dubbed the RiskBusiness Banking Taxonomy Variant 4, reflects 3 major changes from previous taxonomies, namely a completely remodelled risk category framework which differs 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, recovery types and in 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 have experienced," explained RiskBusiness International Chief Executive Mike Finlay. "The aging 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 continuously emerging, necessitating continual 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 is little wonder that many internal loss event databases and risk registers contain classification garbage."
These sentiments were 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 their latest Banking Variant 4! Although some senior management have become familiar with the longstanding Basel categories, there were also many more that questioned its suitability. In a nutshell, we needed a risk hierarchy that was easy for classification purposes and grouped risks intuitively on reports. Too many meetings were being side-tracked away from real risk management issues and onto 'what does Clients, Products and Business Practices mean?'. With the emergence of the term 'Conduct Risk' confusing matters further, it was also important to show that this is still considered under Operational Risk and therefore the relabeling of CPBP was necessary".
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, 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, then map their own 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, then automatically translate data between the different "languages" or taxonomies, using the mapping rules," said 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 is included and expressly excluded from each element and a set of key words used for automated searching and classification purposes.
