Risk Accounting: The Risk Data Aggregation and Risk Reporting (BCBS 239) Foundation of Enterprise Risk Management (ERM) and Risk Governance

In the period following the global financial crisis high profile regulatory breaches and other instances of banks’ misconduct triggered widespread concern that the culture and standards of conduct in banks had declined to a point of unacceptability. The crisis also brought into sharp focus the inability of banks to completely and accurately report the risks they accept in order to create shareholder value. These events and circumstances culminated in a crisis of trust between banks and their stakeholders that include governments, regulators, investors and customers. Part 1 of this paper explains why bankers – risk managers and accountants in particular – must view the need for the convergence of finance and risk systems within a common control and reporting framework as an imperative. Part 2 describes the ‘Risk Accounting’ methodology and its introduction of both a common measurement framework for all forms of risk and a common risk metric, the ‘Risk Unit’ or RU.