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Case Study

Risk and treasury processes automation

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SUMMARY

Following recommendations from Banque Centrale du Luxembourg (BCL) as well as the findings raised by its internal auditor, the bank wished to automate several operational and regulatory processes conducted by the Risk and Treasury departments.

CUSTOMER GOALS

The project was split across the needs of the relevant departments while covering the subsidiary and branch operations:

1. Risk’s requirements for the tool:

a. Perform liquidity and funding gap calculation

b. Calculate the LCR and NSFR ratios using the EBA templates

c. Review the current IRRBB process and revise it to be compliant with the latest regulatory requirements

d. Build the IRRBB calculation tool (EVE and NII) in line with the best market practices

e. Conduct liquidity stress testing (including its impact on LCR and NSFR)

f. Output “management ready” reports to be shared with relevant stakeholders

2. Treasury’s requirements for the tool:

a. Record and calculate the daily cash flows

b. Calculate LCR and NSFR ratios as well as being able to simulate the impact of specific trades on such ratios

CHALLENGES

When the team began the review and understanding phases of the project they quickly realized that the current processes (i.e. LCR, NSFR and IRRBB) were lacking proper documentation and in some cases had to be revised and formalized before any automation could take place. Nevertheless, the team had to manage the two activities in parallel in order to progress. Lastly, the occasional lack of resource availability pushed the final deadline several times.

SOLUTION

Avantage Reply provided a team of experts with expertise in coding, liquidity risks, interest rate risk and prudential reporting. As part of the project, the team conducted the following:

  • Process review and understanding
  • Regulatory compliance assessment of the current processes (i.e. LCR, NSFR and IRRBB)
  • Process improvement and formalisation
  • Process automation via VBA code (incl. tool development, testing and training of the users)

Final deliverables consisted of the following:

  1. For Risk – tool(s) covering liquidity-relevant processes (i.e. LCR, NSFR, Liquidity mismatch and stress testing) and IRRBB
  2. For Treasury – a Cash Flow tool plus LCR and NSFR calculation and forecasting
  3. Tool documentation explaining the methodology used as well as user instructions
  4. Training sessions with relevant users in order to explain and train them on the usage of the tool