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Finalyse - Composing solutions for Finance

Regulatory Compliance for Retail & Investment Banks

If you are interested in these services, do not hesitate to contact Silvio Santarossa for more information.

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Basel III / CRD IV (Capital Requirement Regulation & Directive)

Composed of a Regulation and Directive, the ‘CRD IV’ package is Basel III’s translation into EU jargon. It implements the BCBS’s new global financial framework with extensions regarding capital buffers and scope of banks. Following Basel’s pillar structure, CRD IV touches sensitive aspects of banks from how much capital they should hold and how they calculate risk to remuneration limits for their employees. Finalyse offers its holistic approach to tackle the regulatory hassle whilst delivering concrete added value in specific subjects such as credit risk model validation.  For more information, please look at Basel & Credit Risk and Basel & Operational Risk to see how Finalyse brings added value to such regulatory reforms.

If you are interested in these services, do not hesitate to contact Silvio Santarossa for more information.

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SSM & AQR (Single Supervisory Mechanism & Asset Quality Review)

In the last 10 years, EU financial regulations have put special emphasis on level 3 assets. Through the newly created Banking Union, its supervisory arm called the ‘Single Supervisory Mechanism’ and its kick start Asset Quality Review, credit institutions are now facing a supervisory game changer.

Notably, the AQR process requires Financial Institutions to perform qualitative reviews of the core trading book processes and quantitative reviews of the derivative pricing models.

Finalyse offers deep qualitative and quantitative analysis of specific items of the balance sheets, with exposures to credit and market risks, for activities in Euro and in foreign currencies, and for on- and off-Balance items focused on positions at risk.

Our service includes data integrity validation, portfolio sampling, pricing validation, Credit Risk estimation, Credit Risk mitigation and RWA adjustment. Our experts will ease your burden by taking care of all these requirements and by providing you with strategic regulatory inputs.

If you are interested in these services, do not hesitate to contact Silvio Santarossa for more information.

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SRM (Single Resolution Mechanism)

In parallel with the SSM, the Single Resolution Mechanism serves as the resolution arm of the newly created Banking Union. Its main goal is to harmonize the resolution process across the participating EU Member States through a resolution board with common tools and funds. Such fund has been politically coined to be fully harmonized in the following years but will require contributions from individual Banks. Notably, through risk assessment of Banks’ portfolios, their contribution will vary. Such risk assessment methodology will be the subject of a further implementing norm which highlights the necessity to be frequently updated about regulatory updates.

Finalyse can reduce the regulatory hassle of this process by bringing simplified and adjusted updates, interpret such norms in light of the clients’ portfolio and help bring risk advisory and valuation services to ensure adequate projection of the clients’ portfolio in front of the supervisor.

If you are interested in these services, do not hesitate to contact Silvio Santarossa for more information.

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Regulatory Requirements in Banking

Basel III, IFRS and MiFID all require substantial enhancement of systems and processes to meet the increasing demands of external agencies for transparency in risk, performance and market activity disclosure.
For each risk type - Credit, Market & ALM, Operational and Liquidity - the organisation and processing of data on the banks' activities need to meet the standards of value and risk reporting set out in the regulations.

Whatever the level of detail a Bank initially chooses to report (basic, standard or advanced), there is increasing pressure to demonstrate that external disclosure is aligned on internal risk management procedures. This means that the need to develop integrated frameworks for value and risk reporting requires a global vision of the business and IT procedures.

Regulatory compliance should always be seen as part of a broader risk infra-structure that should be designed with a global trend towards an Economic or Fair Value view of a bank's exposures. Finalyse provides expertise in MIS and Datawarehousing techniques, exposure valuation and risk assessment methodologies and the analysis and project management skills that contribute to successful projects in this domain.

Finalyse has participated in a large number of Basel II projects covering Retail, Merchant and Investment Banking from Quantitative Impact Studies to the implementation of calculation, aggregation and reporting systems.

If you are interested in these services, do not hesitate to contact Silvio Santarossa for more information.

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Basel & Credit Risk

Though the process of implementing Basel III is well underway globally, many exciting challenges remain in the different risk areas:

  • Credit risk/Concentration risk - Commonly accepted as the single most important risk factor, concentration risk is integrated in the risk management procedures of an increasing number of financial institutions. This tendency is amplified by the growing attention paid by the regulators, amongst others in the context of the Basel regulations. From its experience in implementing both regulatory as economic capital systems, Finalyse is well positioned to enable banks to have full insight in the concentration/diversification dynamics of their portfolios.
  • Credit risk/Stress Testing - The BIS committee on the global financial system (BCGFS) (2000) defines 'Stress-testing' as "a generic term describing various techniques used by financial firms to gauge their potential vulnerability to exceptional but plausible events". The two key words used to define a stress event are 'exceptional' and 'plausible'. Stress-testing assesses effects of only exceptional (that is, low probability) events rather than of ordinary 'bad news'. However, while stress events must be low-probability incidents, they should not be so far-fetched as to stretch the limits of plausibility. This is because implausible stress-tests do not provide meaningful results on the strength of which risk managers can plan corrective action. Finalyse has acquired a significant amount of experience in designing and implementing such stress testing and can deliver support to future stress tests such as the upcoming European Banking Authority 2014’s one, precursor to the SSM’s takeover.
  • Credit risk/Active Portfolio Management - In the last five to ten years, credit risk has developed into an asset class of its own. Credit risk as a tradable asset is becoming just as important as fixed income or foreign exchange. This has enabled the development of a credit risk analogue to the interest rate & liquidity risk ALM function. Equipped with a wide range of credit derivatives, portfolio managers are now able to actively trade previously untradeable risks. Market players can sell off unwanted credit risk concentrations to market participants looking for extra returns or diversification. Finalyse has several years of experience in this area, helping to implement large and advanced systems for portfolio management. Our consultants are able to design the data models needed for active portfolio management, implement, analyze and enhance the most advanced internal or vendor tools. We also have experience with the actual portfolio analysis and identification of hedging possibilities (risk contribution analysis, tail risk analysis).

If you are interested in these services, do not hesitate to contact Silvio Santarossa for more information.

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Basel & Operational Risk

Defined by the Basel committee as: "The risk resulting from inadequate or failed internal processes, people, systems or from external events", this incorporates a very wide range of risks, from external events like natural disasters that occur rarely but can lead to enormous losses, to simple transaction errors that occur frequently but do not cost a lot.

Currently three different approaches are proposed to quantify this risk in capital terms:

  • The Basic Indicator Approach (BIA),
  • The Standardised Approach (SA), and
  • The Advanced Measurement Approach (AMA).

Finalyse can assist you in building a full blown AMA model. This starts at the identification of risks and the definition of a data model, covers the development of the statistical/expert model to quantify the capital, and goes up to the reporting of the results. This model will enable you to manage the operational risks of your institution more effectively.

If you are interested in these services, do not hesitate to contact Silvio Santarossa for more information.

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