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.
IFR/IFD - new prudential requirements for all investment firms

IFR and IFD have clearly been drafted in order to fil a gap in terms of prudential and governance regulation framework. The former situation presented some kinds of loophole between Credit Institutions that are subject to CRR / CRD IV, Investment funds that are subject to AIFM and UCITS (these regulations also provide a framework in terms of governance, risk management, remuneration, reporting and disclosure), and MIFID Investment Firms that were subject to none of them until now. The gap is now filled completely! The question I am sure all actors have in mind is how far EBA and ESMA are ready to go to consider the “implementation burden” for institutions! We might have a beginning of answer on the 4 September 2020!

Risk Appetite Framework and Decision Making

This article details the mechanisms governing risk decisions and the underlying complexity of using risk appetite as a component of the strategic decision.

Sorrows of Credit Risk Model Validation

This article introduces the challenges of the ECB supervised entities regarding their internal validation of the IRB Approach. It also considers a benefit of use of Model Validation tool.

Implementing BCBS239, What does it take?

This article discusses how Finalyse carries out implementation of BCBS 239 projects. It shows the stumbling blogs that typically hinder implementation of such projects, such as big-bang approach or lack of communication between stakeholders. To avoid these pitfalls, Finalyse proposes a piecemeal, iterative approach which is discussed in further detail in this article. The article also provides several tips for translating a BCBS 239 plan into current systems.

Non-Maturity Deposit Modelling

This post demonstrates step-by-step a possible way to conduct Non-Maturity Deposit Modeling. It shows the practical challenges, taking as an example the overnight deposit rates in Hungary. In the current low-interest-rate environment, the modelling of non-maturity deposits has attracted interests from Banks. These models are used for critical purposes in banks such as the management of the interest rate risk of the balance sheet, or in their earnings, as it is now also expected from supervisory authorities. Finally, they are also used to determine a transfer price for deposits, to retribute the business lines in charge of collecting the deposits appropriately.

Machine Learning Model explainability –why is it important and methods to achieve it

Machine learning is today’s buzzword and it has gone through some phenomenal changes over the last few years. However, despite widespread adoption, machine learning models remain mostly black boxes. Hence it is essential to have techniques for explaining these black boxes in an interpretable manner. This article looks at the methods that are most used for interpreting machine learning models: SHAP, LIME and CP Profiles. It discusses advantages and drawbacks of each and shows how are they being used in practice.

Solvency 2020 review - EIOPA’s opinion on recovery and resolution

The 2008 financial crisis has shown that it is vital to have a good recovery and resolution policy. Because the European-level policy on resolution and recovery of the insurers is insufficient, some national authorities have adopted their own recovery and resolution policies. However this has led to a fragmented regulatory landscape across the EU. Therefore, the European Commission was requested to create a harmonised framework. This article explains eight proposed recommendations on the future amendments to the Solvency II regulation published on that topic by EIOPA In the Consultation Paper on Solvency 2 review 2020.

New definition of default: tips to simulate the future impact!

Every bank is highly interested in predicting the impact that the application of the new default definition would have on various aspects. That prediction can be achieved via a comprehensive simulation of the default under the new definition on the available historical data of the credit portfolio. Knowing the broad impact of the new definition on capital requirements, IFRS 9 models, precision is highly recommended for the sake of planning of own funds requirements.

2020 Solvency II review – Technical Provisions and SCR

The 2020 Solvency II review intends to bring about several changes to the Solvency II Framework Directive. It follows the 2018 Solvency II interim review, which amended the Solvency II Delegated Acts. In this article, we focus on the EIOPA’s opinions on technical provisions. For now, we are excluding Long Term Guarantee (LTG) measures, a topic which deserves an article all to itself.


Following the introduction of Solvency 2, the European Commission and Council have decided to continue their efforts to develop a common regulatory framework for the financial industry to strengthen its governance. On 13th January 2017, the regulators laid down a new milestone in the pensions market with IORP2, the new directive that replaced the existing and much amended directive 2003/41/CE. This new directive had to be transposed into national laws before 13th January 2019.