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Case Studies

Case Study

Warehouse and risk management framework - Gap analysis roadmap

FOCUS ON: Case studies, Risk,

SUMMARY

The client is the subsidiary of a large banking group in France, which is active in Asset & Wealth Management, Corporate & Investment Banking, Insurance and Specialized Financial Services and Payments.

THE CONTEXT

Noting the materiality and the complexity of the originate to distribute model, the client requested Avantage Reply to perform a gap analysis of its existing set-up in light of market practices and to design a multi-year roadmap to remediate identified shortcomings. In addition to this, the client sought clear recommendations as to how to implement and strengthen a robust Warehousing and Distribution risk management framework.

THE CHALLENGE

There were multiple challenges, stemming from the wide range of activities, the complexity of the products involved and the global footprint (US, Asia and Europe). Further to this, the existing framework was poor as the risk census of each product throughout its lifecycle was incomplete. This lead to incomplete risk measurement and monitoring coverage. This was compounded by a weak IT infrastructure and data quality.

APPROACH

The mission began with the conduct of an in-depth analysis of risk departments involved in the securitization monitoring across the bank. The approach used was 4 stage top-down approach. Firstly, highlighting the findings in the existing state; Secondly, identifying gaps between the target operating model and findings in the existing state; Thirdly, identifying requirements to remediated the gaps identified and finally, setting a remediation roadmap with a global action plan. Each stage was structured around the below five key topics:

  • Scope and associated business lines
  • Products and material risks associated
  • Information systems and data collection
  • Risk management & monitoring
  • Governance

SOLUTION

A short term tactical solution was adopted, covering central and local monitoring & reporting. This involves the strengthening of the existing reports process by capitalizing on local expertise. Long term strategical solutions were adopted to review global governance. This governance review covers roles and responsibilities within different teams in risk departments and the creation of a data governance framework with the creation of a dedicated securitization database. In terms of monitoring, an overhaul of central and local indicators was adopted rather than a local-entity-specific solution.

RESULTS AND BENEFITS

The completion of the project has allowed local entities to comply with group requirements and minimum standards. The mandate was successfully completed regarding the design of all key steps for implementing the risk management framework. The implementation process is currently in-progress.

RELATED CONTENTS

22.12.2020 / Risk Management Magazine

Press Article

Blockchain securitization: an innovative technology to boost asset liquidity

The main aim of this paper is to show the potential benefits for the Securitisation process, both in terms of the setup of operations and in the entire product life cycle, derived from the adoption of the Blockchain Technology.

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,..)

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