MIGRATION AND TESTING OF CREDIT RISK MODELS

FOCUS ON: Case studies,

SUMMARY

Avantage Reply assisted a European Institution in implementing its own version of Credit Risk models and migrating from Moody’s RAY to a Java-based solution implementation. The institution needed Avantage Reply support to ensure smooth communication between the business and the developers and to ensure the correct migration and implementation of the new models. All the process required completed documentation.

CUSTOMER GOALS

The Client’s Credit Risk team was responsible for the maintenance and implementation of internal models, including but not limited to risk-free rate, cash flows and ECAP.

In this context, Avantage Reply brought its functional expertise and acted as a liaison between the business and the IT department to ensure the successful migration and implementation of the new internal models.

Additionally, the client’s objective was to document the migration and testing process as well as the final set-up to facilitate audit trail.

CHALLENGES

One of the challenges was outdated functional specifications which were largely written many years in the past and have not been updated since to reflect the evolution of the institution.

The second difficulty was the understanding between the business and the developers. This situation led, among others, to wrong workload estimations. Combined with the first Covid-19 wave (and the associated remote working), that resulted in additional and significant overtime from project teams.

SOLUTION

To achieve the objectives defined by the client, Avantage Reply perform the following actions:

Analysis of business and functional requirements in order to challenge them where needed
Reverse Engineering of legacy Java code in order to refactor and rewrite undocumented processes, leading to instructing the team on required new developments
Visualization of models’ relationships on Visio to document the links between them
The written requirement had to be translated into Epik, Stories, and Tasks on Jira in order to follow newly adopted Agile methodology

RELATED CONTENTS

Case Study

FRAUD RISK: AN EXAMPLE OF OPERATIONAL RISK ASSESSMENT

The client, a crypto-currency exchange, has requested Avantage Reply to assist with an ongoing project around fraud risk. As the regulation around virtual asset service providers is not yet mature, the measurement of new and non-traditional operational risks is not an easy exercise. In fact, several players in the industry have recently found themselves being vehicles for the continuation of various financial crimes, including fraud. In the client landscape, scammers and individuals with malicious intentions have exploited the weaknesses of decentralized finance (DeFi) and have misappropriated even millions of dollars from their victims through first party or third party external fraud.

Case Study

Embedment of ICAAP & ILAAP exercise

Avantage Reply has assisted a Private Banking group in the Eurozone in their embedment of Internal Capital Adequacy Assessment Process (ICAAP) & Liquidity Adequacy Assessment Process (ILAAP) exercise, s.c. ICLAAP. Following the recommendation of the European Central Bank (ECB), bank’s current practice of ICLAAP had to be reviewed and challenged. The results of the review have been presented to the Management Body. In particular, identified gaps and attention points with respective actions to improve the way ICAAP and ILAAP are conducted. The analysis has been enriched with market best practices observed among various financial institutions in the Eurozone.