Both UK and European banks are separately looking at projects to design an early warning system using market data to mitigate the threat of major misconduct or the beginning of the next financial crisis.
According to a report in the Daily Telegraph, an independent review of behaviour within UK banks is exploring the idea of a industry-wide data system that flags up early indications of misconduct or financial fraud.
The review, which is led by former Institute of Directors chief Simon Walker, has been carried out on behalf of UK trade body UK Finance and is expected to issue its recommendations in October.
The report has been inspired by the fallout from a number of recent miselling scandals, including payment protection insurance and lending to small businesses, both of which have incurred heavy fines for UK banks.
Consequently Walker and his team, which includes researchers at Kingston University, are reported to be collating compliants data as well as out-of-court settlements to see how potential scandals can be detected earlier.
One idea reprtedly under consideration is a real-time data system that pools complaints.
Meanwhile the European Commission is busy developing its own early warning system, designed to give policymakers and regulators early indications of any potential systemic risks. The EARLINESS.Eu project recently released an update on its work and more details on its inner workings.
This includes the three different levels of data: market-wide financial data, firm-specific financial data and predictive data using systemic risk measures.
“The aim of this configuration is to have (early) signals of systemic risk by identifying them in terms of source and location,” comments Professor Loriana Pelizzon, project supervisor. “The early warning signals can be monitored at global and European levels and for a given source of systemic risk. In this sense, these signals can help to prevent a potential crisis.”