Optimal regulation of banking system’s advanced credit risk management by unified computational representation of business processes across the entire banking system

Figures & data

Figure 1. Bank’s business rules approval procedures.

Figure 2. Regulatory reporting system business process value chain.

Figure 3. Package generation.

Figure 4. Bank package processing.

Figure 5. Comparison of the current system & the proposed solution.

Figure 6. Framework architecture of the Basel II & III regulatory system, extended from (Adem, 2010).

A.1. Business Rules

BR ID	Description	Context	Rule	Source
BR-01	Basel II Credit Risk validation rules that is approved by SAMA	Operations	NA	SAMA
BR-02	Basel II Operational Risk validation rules that is approved by SAMA	Operations	NA	SAMA
BR-03	Basel II Market Risk validation rules that is approved by SAMA	Operations	NA	SAMA
BR-04	Basel II Systematic Risk validation rules that is approved by SAMA	Operations	NA	SAMA
BR-05	The data should be consistent with previous reported data. This is accomplished using time series analysis, and outliers	Compliance Dept.	NA	Bank
BR-04	The report should be signed by the CFO before posting to SAMA	Operations	NA	Bank

A.1. Risk

Risk ID	Description	Source	Severity Level	Status	Resolution
RSK-01	Delay in posting the regulatory data	SAMA	High	partial	Implementing escalation
RSK-02	Data Quality Problems	SAMA	High	Partial	Using Data Quality Indicators, and enforcing accountability.

A.3. KPI

Name	Acronym	Description	Context	Importance	Soft Threshold	Hard threshold
KPI-001	TTR	Time to Resolve is the average time required to resolve an incident or a problem	Technical	High	1 H	3 H
KPI-002	BRT	Bank Response time is the average time for the bank to response to SAMA call	Technical	High	15 S	60 S
KPI-003	PGT	Package generation Time is the average time for SAMA to prepare the package	Technical	High	1 H	5 H
KPI-004	RSR	Re-Send Rate is the average time required for the banks to resend the data in case of any failure	Technical	High	15 Min	1 H
KPI-005	DET	Data Entry Time per form is the average time for the bank to input the data in the system	Technical	High	5 Min	10 Min

A.4. Quality Attribute

QA ID	Description
QA—01	Interoperability
QA—02	Reliability
QA—03	Availability
QA—04	Usability
QA—05	Security
QA—06	Performance
QA—07	Scalability
QA—08	Extensibility
QA—09	Adaptability
QA—10	Testability
QA—11	Auditability
QA—12	Operability & Deployability
QA—13	Modifiability.

A.5. Data Quality Dimension

DQ ID	Dimension	Description
DQ—01	Accuracy	Accuracy of Data
DQ—02	Believability	The extent to which information is regarded as true and credible.
DQ—03	Reputation	The extent to which information is highly regarded in terms of its source or content.
DQ—04	Objectivity	The extent to which information is unbiased, unprejudiced and impartial.
DQ—05	Free-of-Error	The extent to which information is correct and reliable.
DQ—06	Value Added	The extent to which information is beneficial and provides advantages from its use.
DQ—07	Relevance	The extent to which information is applicable and helpful for the task at hand.
DQ—08	Completeness	The extent to which information is not missing and is of sufficient breadth and depth for the task at hand.
DQ—09	Timeliness	The extent to which information is sufficiently up-to-date for the task at hand.
DQ—10	Appropriate Amount	The extent to which the volume of information is appropriate for the task at hand.
DQ—11	Understandability	The extent to which information is easily comprehended.
DQ—12	Interpretability	The extent to which information is appropriate languages, symbols, and units and the definitions are clear.
DQ—13	Concise Representation	The extent to which information is compactly represented.
DQ—14	Consistent representation	The extent to which information is firmly represented

A.6. Agent Context Matrix

Agent Name	Acronym	Description	Context
Bank Data Entry Operator	BDEO	This is the Data Entry Operator of the Bank	Bank Side
Bank CFO	BCFO	This is the Bank Chief Financial Officer	Bank Side
SAMA IT Technical Administrator	SITA	This is SAMA IT Technical Administrator	SAMA Side
SAMA Supervision Dept. Director	SSDD	This is the Director of the Supervision Dept.	SAMA Side
SAMA Supervision Dept. Analyst	SSDA	This is the Analyst of the Supervision Dept.	SAMA Side
SAMA IT Director	SITD	This is the director of the Information Technology Department	SAMA Side

B. Evaluation of the proposed solution

Criteria Acronym	Participants Rating Based on Current System							Average
	Criteria	P1	P2	P3	P4	P5	P6
C1	Data Entry Errors	3	2	3	4	2	2	2.67
C2	Data Entry Time	1	1	1	2	1	1	1.17
C3	Business Rule Verification	3	4	2	2	3	1	2.50
C4	Data Validation Process	4	2	2	3	2	2	2.50
C5	Foundation IRB And Advanced IRB Validity	3	3	2	3	1	2	2.33
C6	Compliance with Basel II For PD/LGD Approval Procedures	2	2	1		1	1	1.40
C7	Timely Intervention to Resolve Issues with The Bank	1	1	1		1	2	1.20
C8	Predictability of The Entire Bank Processes	2	2	3	3		1	2.20
C9	Banks Staff Turnover or Absences	1	1	1	1	1	1	1.00
C10	SAMA Staff Turnover or Absences	1	1	1	1	1	1	1.00
C11	Predictability of The Entire SAMA Processes	3	3	2	3	3	2	2.67
C12	Bank Side System Maintenance	1	2	1	2	1	1	1.33
C13	Bank Side System Failures	1	1	2	3	1	1	1.50
C14	Delay Due to Resending of Package	2	3	2	1	2	1	1.83
C15	Timely Enforcement the Regulatory System Operational Policies	2	3	4	2	1	2	2.33
Criteria Acronym	Participants Rating Based on The Proposed Solution							Average
	Criteria	P1	P2	P3	P4	P5	P6
C1	Data Entry Errors	5	4	4	3	4	4	4.00
C2	Data Entry Time	4	3	4	2	3	3	3.17
C3	Business Rule Verification	5	5	5	5	5	5	5.00
C4	Data Validation Process	4	5	5	5	5	3	4.50
C5	Foundation IRB And Advanced IRB Validity	5	4	4	5	3	3	4.00
C6	Compliance with Basel II For PD/LGD Approval Procedures	3	3	3	4	3	4	3.33
C7	Timely Intervention to Resolve Issues with The Bank	2	4	2	4	4	3	3.17
C8	Predictability of The Entire Bank Processes	4	3	5	4	5	4	4.17
C9	Solution for Banks Staff Turnover or Absences	2	2	2	3	2	3	2.33
C10	Solution for SAMA Staff Turnover or Absences	3	2	2	3	3	3	2.67
C11	Predictability of The Entire SAMA Processes	4	3	4	5	4	4	4.00
C12	Bank Side System Maintenance	5	5	5	5	5	5	5.00
C13	Bank Side System Failures	5	5	5	5	5	5	5.00
C14	Delay Due to Resending of Package	4	5	5	5	4	5	4.67
C15	Enforcing the Regulatory System Operational Policies	2	4	4	4	4	3	3.50

C. Description of Evaluation Criteria Articles

Criteria Acronym	Terminology	Description
C1	DATA ENTRY ERRORS	The error caused by the bank data entry operator while entering the regulatory data into the system
C2	DATA ENTRY TIME	The time that spent while entering the regulatory data
C3	BUSINESS RULE VERIFICATION	Bank process to verify their business rules that entered by the bank staff
C4	DATA VALIDATION PROCESS	Supervisory (SAMA) process to validate the bank data
C5	FOUNDATION IRB AND ADVANCED IRB VALIDITY	Credit Risk approaches procedures that validated by the supervisory
C6	COMPLIANCE WITH BASEL II FOR PD/LGD APPROVAL PROCEDURES	Supervisory process to approve banks’ business rules procedures for Basel II regulations compliancy
C7	TIMELY INTERVENTION TO RESOLVE ISSUES WITH THE BANK	SAMA staff response to help the bank to resolve issues
C8	PREDICTABILITY OF THE ENTIRE BANK PROCESSES	The extent of the bank processes explicitness and understanding
C9	BANKS STAFF TURNOVER OR ABSENCES	The rate of the bank staff movement and deficiencies
C10	SAMA STAFF TURNOVER OR ABSENCES	The rate of the SAMA staff movement and deficiencies
C11	PREDICTABILITY OF THE ENTIRE SAMA PROCESSES	The extent of SAMA processes explicitness and understanding
C12	BANK SIDE SYSTEM MAINTENANCE	Rate the response of the banks’ system maintenance
C13	BANK SIDE SYSTEM FAILURES	Rate the volume banks’ system failures
C14	DELAY DUE TO RESENDING OF PACKAGE	Identify the extent of the delay of resend the data
C15	TIMELY ENFORCEMENT THE REGULATORY SYSTEM OPERATIONAL POLICIES	The actions to enforce the regulatory operational policies

D. Glossary/Acronyms

Terminology	Description
A-IRB	Advanced Internal Ratings-Based
BR	Business Rules
BRE	Business Rule Engine
BRVE	Business Rules Verification Engine
BCBS	Basel Committee on Banking Supervision
BIS	Bank of International Settlements
BPM	Business Process Management
BPMM	Business Process Maturity Model
BPMN	Business Process Modelling Notation
BPEL	Business Process Execution Language
CTQ	Critical to Quality
EAD	Exposure at Default
EIS	SAMA Executives Information System
ESB	Enterprise Service Bus
EXML	Expanded eXtensible Mark-up Language
OPI	Operational Performance Indicator
IDE	Integrated Development Environment
IFC	International Finance Corporation
IRB	Internal Ratings-Based
IMF	International Monetary Fund
KPI	Key Performance Indicator
KM	Knowledge Management
LGD	Loss Given Default
RMA	Rule Management Application
PBB	Process Building Block
PD	Probability of Default
SAMA	Saudi Arabian Monetary Agency
SJN	SAMA Joint Network
SLAM	Service Level Agreement Management
SLA	Service Level Agreement
SLR	Service Level Requirement
SOA	Service Oriented Architecture
SOAP	Simple Object Access Protocol
SBBL	Semantic Building Block-based Language
XBRL	eXtensible Business Reporting Language