CRR3 Validation Toolkit
With CRR3, banks are now mandated to calculate an output floor to reduce variability in regulatory capital requirements produced by internal models. This makes it imperative to calculate the risk-weighted assets (RWA) for the entire portfolio using the standardized approach as well.
This unique tool is able to perform Standardized calculations on the entire portfolio of the bank, which is used for the output floor as stipulated by the regulation.
How does Finalyse address your challenges?
CRR3 Impact Assessment
- CRR3/BASEL IV RWA impact assessment (including QIS)
- Benchmarking for output floor
- Includes allocation of credit risk mitigants
Run SA on entire portfolio
- Business rules defined as per CRR2 and CRR3/Basel IV
- Removes the effort on user defined test cases
Customise as you need
- Add/modify dimensions "outside" the Basel IV calculation standards for impact assessment- ex: Mortgage floors prescribed by local regulators
Leverage Test Cases Simulator
- Open source (R based) test cases generator for easier modifications
- Asset class specific dimensions can be added easily
- Skew the number of test cases based on the bank's actual portfolio
Fully transparent
- Get a complete view of all the calculation rules as specified in the regulations
- Traceability for audit/validation purposes
Exposure-class dimensions
- For corporates, view SME and Specialized Lending level results
- For retails, view transactor info
- For Mortgages, get Whole Loan vs Split Loan results
How does it work in practice?
Finalyse CRR3 Validation Toolkit provides an efficient way for banks to validate the implementation of RWA calculations and be better prepared for CRR3 in 2025. Our experts have designed this unique tool which is able to perform Standardized calculations on the entire portfolio of the bank, which is used for the output floor as stipulated by the regulation. With this toolkit, leverage Finalyse’s CRR2 and CRR3 test cases simulation engine for generating exhaustive test cases covering the bank’s portfolio.
In essence, the tool works in the following ways:
- Reads input text files with integrated data model for the calculation engine. Alternatively, leverage open-source code to transform into use cases for validation
- Performs Standardized RWA calculations for different configurations (CRR2, D424 (Basel IV), CRR3) with credit-risk mitigant allocation
- Demonstrates each stage of workflow and produces compatible output for comparing results
With the test cases prepared, load the text data (csv files) in the data model and press start – the CRR3 RWA Validation tool will do the rest. The workflow uses Apache Airflow with the processes linked to the underlying engine. The output (csv files) can be integrated in any reporting data mart for benchmarking purposes during RWA validation.
Gauge the impact of moving to CRR3 (Basel IV) and see detailed explanations for movements in the results.
Key Features
- Computes full Standardized run calculations for the entire portfolio
- Provides the ability to compare both CRR2 (Basel III) and Basel IV/CRR3 results – perform faster validation for CRR3 implementation
- With the open source (R-based) test cases generator, create exposure-class specific test cases complying with CRR2/CRR3 guidelines
- Add local regulator aspects (ex: Mortgage floors) in the tool and customize freely
- Generate comparison reports for impact assessment of moving to CRR3/Basel IV
Abishek Chopra is a seasoned Risk Management professional with over 12 years of experience in multiple areas of credit risk, especially on CRR and Basel guidelines. He has expertise in addressing complex regulatory topics such as credit risk mitigation for RWA optimization of different asset classes, Basel IV application of Whole Loan/Split Loan approaches for mortgages, SA-CCR and Securitization.
Nathan Desmidt is a Managing Consultant with more than 8 years of experience in risk management. Nathan’s area of expertise lies within regulatory capital calculations, specifically in the context of CRR2/CRD5 and upcoming Basel 4/CRR3 regulations. Recently Nathan has been involved in the implementation of a new RWA calculator at a large financial institution aiming to enable Basel 4 compliancy, focusing on validation of RWA calculations in light of the new framework’s developments.
Bruno Kahilu Muyeye is a Managing Consultant with more than 10 years in risk management. He has a broad knowledge of SAS Risk Solutions for Banks and Insurance companies and has been involved in several SAS implementation projects such as Regulatory Capital Management (RCM), IFRS9/IFRS17, SAS Insurance Capital Management, and Market Risk Management. Bruno is a certified Financial Risk Manager (FRM) and Professional Risk Manager (PRM).
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