Booking Model Review

SUMMARY
A cross-border banking group was in the process of applying for a new banking licence in Germany, which required submitting a Regulatory Business Plan to the German Federal Financial Supervisory Authority (BaFin). A critical component of this plan was the design and documentation of an appropriate booking and hedging model for the new German legal entity, consistent with supervisory expectations. Particularly, with respect to the ECB’s 2018 Supervisory Expectations on Booking Models. Avantage Reply supported the Bank by assessing its current approach, identifying gaps against regulatory expectations, and developing a fully documented, compliant booking and hedging strategy for inclusion in the licence application. 

CUSTOMER GOALS
The Bank aimed to secure a new banking licence in Germany by meeting BaFin’s supervisory expectations as part of its Regulatory Business Plan. A central goal was to design a booking and hedging model for the new German entity that would withstand regulatory scrutiny, align with the ECB’s Supervisory Expectations on Booking Models (2018), and ensure robust governance, transparency, and operational resilience.

CHALLENGES
The Bank faced significant regulatory and organizational challenges in adapting its existing booking and hedging strategy to meet German and European supervisory expectations. While its current approach complied with other jurisdiction’s expectations, BaFin was expected to demand greater local substance, clearer governance of intragroup back-to-back hedging arrangements with its Head Office, and enhanced operational independence. Additional challenges included ensuring sufficient local staffing and governance, access to Financial Market Infrastructures (FMI) under stress conditions or resolution scenarios, and the adequacy of IT systems and reporting capabilities at both local and Head Office levels. 

SOLUTION
Avantage Reply performed a comprehensive assessment of the Bank’s existing booking and hedging strategy, benchmarking it against BaFin and ECB supervisory expectations. This assessment included a detailed review of internal governance structures, local staffing in Luxembourg, access to Financial Market Infrastructures, intragroup hedging arrangements with the Head Office, and the IT infrastructure supporting booking and reporting processes. Based on this analysis, Avantage Reply developed and documented a detailed proposal for a compliant booking and hedging model for the new German entity. This proposal specified the changes needed to existing processes to meet regulatory expectations. Avantage Reply then worked closely with the Bank’s key stakeholders at both Group and local levels—including the programme’s steering committee—to discuss and agree on the proposed strategy, ensuring alignment and readiness for submission as part of the Regulatory Business Plan.

CUSTOMER DESCRIPTION
A multinational private bank and financial services company offering wealth management, asset management and asset servicing to private clients and institutions.