Publications

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Case Study

COST-BENEFIT ANALYSIS POLICY PROPOSAL

A leading trade association for the UK banking and financial services sector was looking to respond to one of the UK government bodies’ call for evidence on regulatory coordination in respect of recommendations for improving Cost/Benefit Analysis (CBA) by financial-services regulators in the UK. Avantage Reply was able to finalise the policy paper for the client to successfully submit their response to the UK regulator within the required timeframe.

UK Finance

White Paper

Financial Services Future Regulatory Framework Review: Phase-II Consultation 2

The FRF review is a major opportunity to improve the effectiveness and efficiency of banking and finance regulation now that the UK can determine its regime according to its own priorities. In this response to HMT’s first consultation on phase II of the review, we make detailed proposals for updating the framework under five main headings.

Case Study

Operational Risk Scenarios and Stress Testing

Avantage Reply assisted a UK asset manager that provides services to both retail and institutional clients, in ensuring its operational risk framework and stress testing approach meet the regulatory requirements and are aligned with the industry best practice.

Case Study

Transition to direct supervision by the European Central Bank

The ECB banking supervision is based on the same rules as local supervision (single rulebook), public information on the differences between both is not commonly available. While there are differences, these are on a practical level and only known to experts with insights on both locally and directly supervised banks. Avantage Reply prepared a review of these differences and the gaps of the client to these the previous year. The client wanted to have an update on these recommendations based on the progress that was made during the year, also with regard to the updated timeline to ECB supervision. To address these topics, Avantage Reply organised workshops with its subject matter experts and the client and reviewed the relevant documents provided by the client.

Case Study

FORWARD FLOW ARRANGEMENT

Avantage Reply assisted a client that was reviewing a potential transaction as part of a strategy to take on selected exposures to second charge mortgages and efficiently deploy its capital resources. As part of its broader review, the client asked Avantage Reply to review their internal materials, identify relevant considerations (primarily from a capital and liquidity perspective) and provide an evaluation of the proposed structure of the transaction.

Case Study

RISK MANAGEMENT SUPPORT OF A UK SUBSIDIARY, EU BANK

An EU bank had established a UK subsidiary to continue the activities of their currently passported branch after Brexit. The goal of the project was to assist the client with developing documentation that aligned with internal expectations and regulatory requirements in the UK. Avantage Reply reviewed the risk management framework documentation for the subsidiary and four key documents for the subsidiary in the UK based on FCA regulation.

Case Study

Regulatory Reporting of a UK Branch, EU Bank

Avantage Reply assisted the UK branch of an EU bank who was expanding its UK activities in deposit-taking and commercial mortgages. The goal of the project was to assist the client with its regulatory reporting and compliance in the UK. Avantage Reply reviewed the reporting requirements for the branch and developed a comprehensive suite of all reports that branches in the UK need to review and assess.

Climate Risk

Briefing Note

Environment & Climate Risk RMF Self-assessment

Leveraging on ECB Guide on climate-related and environmental risks and emerging market practices, Avantage Reply has developed a self-assessment tool for financial institutions. The key objective is to help financial institutions while engaging bilateral discussions with ECB early 2021 and evaluating internal capabilities in terms of Environment and Climate-related risk management framework. Interactive and practical, the self-assessment tool covers the key building blocks of ERM function and assesses an institution’s readiness and preparedness in identifying, measuring and managing climate-related risks. Integration of climate dimensions at the highest level of the organization is key due to the transversal impact of climate risk over credit, market, liquidity, operational and other transversal risks.

Stress Testing

Briefing Note

Impact of COVID-19 on Stress Test Models

Since the 2008 financial crisis, regulators have emphasised the importance for banks of using stress tests to better identify potential weaknesses in their banking books, trading books and liquidity positions in the event of market turmoil. This paper will show model outcomes likely to be observed by banks in the 2021 STEBA and propose solutions and considerations for banks to mitigate the risk of having to deal with unrealistic model outcomes.

Regulation

Briefing Note

Supervisory Expectations for International Banks in the UK

On 11 January 2021, the Prudential Regulation Authority (PRA) published a set of documents to outline its approach to international banks (including designated investment firms) operating in the UK, covering both subsidiary and branch structures. This was expected. Our briefing note summarises the key proposals and outlines what they mean for international banks.

ICAAP

Briefing Note

ICAAP quantitative tools

Leveraging on its experience and in line with market practices, Avantage Reply has developed several assets for the ICAAP covering risk quantification and capital planning. This tools are covering the following themes: 1) Risk identification; 2) IRRBB 3) Credit Concentration risk 4) Operational risk 5)Capital planning

ICAAP & ILAAP

Briefing Note

ICAAP & ILAAP Internal Self-Assessment

Leveraging on its experience and in line with market practices, Avantage Reply has developed ICAAP ILAAP self assessments tools. Interactive and easy to use, the self assessment tools cover the key building blocks of ICAAP and ILAAP frameworks and provide an overview that will help benchmarking frameworks in place against supervisory expectations and best practices. ICAAP and ILAAP integrated at the highest level of the organization is key for a proper use of both processes into the decision making process.

Operational Resilience

Briefing Note

Operational Resilience – Principles for a Post-Pandemic World

Covid-19 as well as other physical events have left UK financial institutions anxious about their abilities to continue critical operations during crises. The objective of this paper is to summarize key changes to the Principles for the Sound Management of Operational Risk and highlight the ways in which Avantage Reply can assist FS firms in improving their operational resilience.

Green Economy

Briefing Note

The Roadmap: Paving the Way to a Green Economy

On 9th November, the UK Treasury published a roadmap for mandatory disclosures outlining HMT’s explicit expectations regarding increased transparency and its continued focus on the management and mitigation of climate-related risks. Learn more about the significance of these expectations in this briefing note.

Operational Risk

Briefing Note

Operational Risk - Mitigating Disruption

Banks have now submitted their feedback on the Consultative Document on the Revisions to the Principles for the Sound Management of Operational Risk (PSMOR) published by the BCBS in August. In this briefing note, we contextualise the key proposed revisions to the PSMOR against the regulatory direction of travel over the last decade.

Case Study

IRRBB – Support the transition of the IRRBB metrics computation tool and reconciliation exercise between both outcomes regarding EVE (Economics Value of Equity) and NII (Net Interest Income).

The Client, a huge international bank, request the support of Avantage Reply to further understand and quantify the differences arising between both of their IRRBB metrics calculators. The first, is a hand-made tool provided by the headquarter and the second is a well-known risk software solution used locally. Avantage Reply helps isolating and assessing each of the differences, and in case of materiality, set processes in order to compute overlays. Avantage Reply further helps to add and validate missing products. Validations cover parametrization of the tool, alinement of IRRBB inputs (margin and reference rate) and models (non-maturing products, prepayment, caps, floors,..)

Case Study

IFRS 9 Control Framework

The customer is a retail belgian bank focusing on mortgage loans and consumer credit. Following the implementation of the IFRS 9 ECL calculator, the need arised to implement a control framework to ensure timely and quality calculation and bookings, and integration in the accounting and reporting platforms. Avantage Reply helped the client bridge the distance between different departments to identify the right responsibilities at the right moment in the process to increase its reliability.

Case Study

Internal Audit Co-Sourcing - COREP

The customer is a strong financial player present worldwide providing services in banking sector and insurance. The goal of the project was to conduct a co-sourcing Internal Audit on Common Reporting (Corep). Avantage Reply provided the client with a tailored assistance to its specific needs bringing its expertise and knowledge in order to perform high quality assessment of Corep governance processes.

Green Economy

Briefing Note

Sustainable Finance

During 2019/2020, the UK and EU introduced multiple climate documents to embed sustainable finance into financial systems to assist in the transition to a climate-neutral economic area. The objective of this short paper is to summarise key current documents, followed by an overview of upcoming guidance.

Case Study

Internal Liquidity Adequacy Assessment Process (ILAAP)

Belgian retail bank under the direct supervision of the European Central Bank (ECB). The Bank’s products and services are distributed on-line, through the network of offices in Belgium, and through brokers. The Bank requested Avantage Reply to enhance their Internal Liquidity Adequacy Assessment Process (ILAAP), not only complying with regulatory requirements but also going beyond them to meet supervisory expectations and align to best practices of the market. Therefore, from Avantage Reply we assist in the performance of the official document that will need to be submitted to the supervisory authority. This assignment is not only writing a document, but also looking into the market and new regulations published by the supervisory authorities, analyzing how other banks are facing the new challenges concerning liquidity and sharing our knowledge and experience of the financial industry.

Briefing Note

IBOR Transition: Avantage Reply's Offering

In 2017, the Financial Conduct Authority (FCA) announced that it would cease to compel banks to submit their input rates for the computation of the London Inter-Bank Offered Rate (LIBOR) starting from the end of 2021. The latter has led the Financial Sector to a consensus around structurally different replacement rates that would provide a get-around to the main limitations that led to the discontinuity of LIBOR’s.