Credit Risk Support

SUMMARY

A credit institution in Luxembourg needed to address gaps identified during the Single Supervisory Mechanism (SSM) and Intermediate Parent Undertaking (IPU) regulatory project’s 2021 gap assessment, which had led to a series of Corrective Action Plans (CAPs). To meet European Banking Authority (EBA) expectations, the Bank defined a proportional and materiality-based remediation scope for 2022. Avantage Reply supported the Credit workstream of this project by providing an experienced consultant to deliver key work on Expected Credit Loss (ECL), IFRS 9 methodologies, ECL models, and planning. Through this engagement, the Bank advanced its compliance programme, ensuring alignment with group policies and local regulatory requirements.

CUSTOMER GOALS

The Bank’s primary goal was to remediate regulatory gaps identified in its previous IPU/SSM gap assessment to achieve full compliance with EBA expectations. This included enhancing documentation and governance around credit risk modelling and IFRS 9 processes, ensuring local regulatory alignment, and delivering robust planning and resource estimates for the ongoing programme of work.

CHALLENGES

The Bank faced significant regulatory and operational challenges in meeting EBA on credit model requirements. Gaps identified during the 2021 assessment required detailed corrective action, including aligning local documentation with group-level handbooks while accommodating local regulatory specificities. Ensuring the appropriateness and transparency of ECL models (with five distinct models in Luxembourg). Effective delivery also depended on clear planning and accurate estimation of IT and non-IT resources for both the 2022 and 2023 Books of Work (BoW).

SOLUTION

Avantage Reply provided a dedicated consultant to work within the Credit workstream of the EBA delivery project. The consultant led the uplift of ECL documentation by drafting local policies aligned with the group handbook, identifying regulatory gaps, and preparing local addenda. He actively engaged in group discussions, calls, working groups, and workshops to ensure consistent understanding and alignment. On ECL models, the consultant collaborated closely with the quantitative team (QAT) to challenge, discuss, and validate model design and outputs. IFRS 9 support included updating methodology documentation and enhancing related standards such as Client Credit Scenario Loss Modelling and Credit Analysis processes. 

CUSTOMER DESCRIPTION

The customer is a Leading Wealth and Fund Management Bank involved mainly in private banking and wealth and fund management. The customer has a long-established presence in Europe.