A fresh take on risk and valuation
We keep moving forward, opening
new doors and doing new things,
because we are curious, and curiosity keeps
leading us down new paths.
COVID pandemic: to what extent did the Basel standards improve the bank resiliency

Was the ability of banks to navigate through COVID 19 crisis substantially bolstered by the Basel reforms? The article draws on a series of studies conducted by BCBS. The studies mostly focused on what measures materially improved the bank resilience.

The Introductory Guide to the Challenges on the SFTR Reporting

This article introduces the reader to the regulatory background behind SFTR and outlines the challenges the new standards pose to market participants. The regulation was adopted to provide a more transparent disclosure of the securities financing market and to promote a better account of the risk posed by the interconnectedness via short-term collateralized funding and the reuse of the collateral. Although the regulation was published in December 2015, the associate Technical Standards were only approved in March 2019 with a phased in implementation that concluded in January 2021. This said, the time was short for market participants to adapt and acquire all the information required in over 150 fields.

VaR: An Introductory Guide in the context of FRTB

This article discusses the “Value at Risk (VaR)” metric and its use in the face of recent regulatory developments. The VaR is one of the industry’s most widely used metrics for risk management, though specific implementations vary significantly. In the last years, particularly following the introduction of Basel’s fundamental review of the trading book, the VaR became to be superseded by Expected Shortfall (ES), which is meant to better represent the tail risk. In both Var and ES, the methodology and the data are very important. This article also offers the steps that Finalyse takes to ensure that your VaR/ES models are optimal.

Understanding European Taxonomy and its impacts on the European Markets

This article introduces the reader to the taxonomy regulation. The taxonomy regulation is intended to identify the investments, that are contributing towards the EU climate goals as expressed in the European Green deal. Against the backdrop of COVID 19, it is very likely that the taxonomy will serve as an important funnel for the stimulus/recovery money. However, given the strictness of the EU plans it is likely that the investments that qualify under taxonomy will be supported even further in the future, whereas the investments that do not may experience some adverse treatment. The taxonomy, therefore, is an important glimpse to the future. Read this paper in order to find out more about the basic principles underpinning the Taxonomy.

A Practical View on the ECB’S Guide on Climate-Related and Environmental Risks

The ECB has published the “Guide on climate-related and environmental risks” in November 2020 to encourage banks to facilitate investments in a more sustainable economy. This guide outlines the ECB’s take on the prudent management of climate risk and describes how the institutions are expected to integrate that dimension into their already existing risk management framework in the form of 13 recommendations. This article outlines our interpretation of the ECB guide and presents some key points to facilitate understanding and implementing those regulatory expectations from the point of view of banking institutions.

EIOPA’S Opinion on the Review of Solvency II – Topic: Volatility adjustment

First in the series of blog posts that are to shed more light on the multitude of different changes in the Solvency 2 framework that are to arise from the solvency 2020 review. On the basis of EIOPAs opinion, as well as some other documents this paper sets out to primarily discuss the Volatility Adjustment and the number of concerns regarding the current provisions that either EIOPA or the national supervisors may have together with some proposals of addressing these concerns. The said concerns cover everything from the lack of clarity on the underlying assumptions of VA, to the possibility of cliff-edge effect from the EU member state VA during some particular periods. The secondary topic of this article is the General Application Ratio and the level it should be set to. The EIOPA argues it should be in the region between 65% to 85%.

A Practical Guide for Insurers to Incorporate Climate Risk in Their Own Risk and Solvency Assessments (ORSA)

Climate change poses a serious risk for society and for (re)insurers, with the harmful impact of global warming already being visible. Without further international climate action, global average temperatures and the associated physical risks will continue rising, resulting in increased underwriting risk of insurers, impacting asset values, and challenging their business strategies. On the 5th October 2020, the EIOPA has published a consultation paper on the use of climate change risk scenarios in the ORSA in the form of a draft supervisory Opinion. The consultation is a follow-up to the Opinion on Sustainability within Solvency II released in September 2019 which recommended that (re)insurers should consider climate risks beyond the one-year time horizon within their system of governance, risk-management system and ORSA.

New rules on legislative and non-legislative payment moratoria during COVID-19 crisis

The global COVID-19 pandemic has forced governments all over the world to impose strict measures intended to defend their healthcare systems. These measures have had a significant adverse effect on many business and economic lives of private individuals, more specifically: liquidity issues and difficulty in due payments of financial obligations. In answer to the expected liquidity shortfall, Member States implemented wide range of supportive (economic) measures, including certain forms of moratoria on payment of financial obligation, to address short-term operational and liquidity issues faced by business and private individuals. This paper looks at the latest guidelines on moratoria in face of COVID 19 and its impact on the already existing moratoria.

IAIS Insurance Capital Standard: the road travelled so far and what is next?

This article focuses on giving an overview of the Insurance Capital Standard (ICS), a capital framework which has been developed by International Association of Insurance Supervisors (“IAIS”). The ICS is being developed as a group-wide prescribed capital requirement (PCR), which is a solvency control level above which the supervisor does not intervene on capital adequacy grounds. The ICS is not intended to replace existing arrangements or capital standards for legal entity supervision in any jurisdiction.

IFRS 17 June 2020 amendments overview – the last dance?

On the 25th June 2020, the International Accounting Standard Board (IASB) has published several amendments to IFRS 17. These amendments address many of the concerns raised by the industry and aim at facilitating the implementation of IFRS17, without deviating from its underlying principles. Along with a postponed implementation deadline, the amendments aim mostly at decreasing the administrative cost and complexity as well as improving the consistency of the financial statements results. This article goes through all the changes that result from these amendments, and discusses their impact on the IFRS 17 implementation.