Search Results for tag: Portfolio risk management

Case Study

Liquidity Risk Management Capability Diagnostic

The client was seeking an evaluation of its liquidity risk management capability in terms of the business being supported. Avantage Reply undertook a detailed review and provided recommendations for best practice liquidity risk management, which formed the basis of the client’s subsequent implementation programme.

Case Study

Credit process enhancement within completion of Basel II AIRB application, including the review of credit risk equivalent measurement for global exposure monitoring

As part of the global implementation of its Basel II AIRB approach, the client was required to upgrade a number of credit processes and monitoring tools. In addition, an enhanced and consistent methodology was required for credit risk exposure equivalent measurements for banking book products. Avantage Reply provided a pragmatic solution for monitoring and reporting of these global exposures, by taking resource constraints into account.

Best Practice

Introducing “Basel 4”?… Basel Proposes Changes to Trading Book Market Risk Capital Requirements

The Basel Committee on Banking Supervisions (“BCBS”) have released a consultative paper (“CP”), soliciting comment on the direction being taken by the Committee in regard to changing the methods used to calculate regulatory capital with regards to market risk. The paper’s objective is to present a fundamental review, seeking to address the design of the Trading Book regime as well as weaknesses in the measurements of both Standardised and Internal Model approaches.

Best Practice

Definition of ‘Connected Counterparties’ and Structured Finance Vehicles under the Large Exposures Regime

Arevised large exposures (“LE”) regime came into effect as part of the Capital Requirements Directive (“CRD 2”) as of 31 December 2010. On 26 January 2012, the UK Financial Services Authority (“FSA”) issued a consultation paper (“CP12/1”), which seeks to clarify the definition of ‘connected counterparties’ and the treatment of structured finance vehicles. In this practice note, we provide a high-level review of CP12/1

Best Practice

FSA Guidance: Assessing suitability

In January 2011, the FSA published its proposed guidance on Assessing Suitability. This draws on a number of FSA thematic reviews and investigations between March 2008 and September 2010 and identifies significant risks to the FSA’s consumer protection objective arising from unsuitable personal recommendations by financial advisers and unsuitable investment selections by discretionary investment managers. The FSA has said the level of failure in this area is unacceptable.

Best Practice

FSA ARROW Reviews: Avoid the pitfalls and take early action

Media reports and recent industry surveys have highlighted two issues which may set alarm bells ringing for those with an ARROW review pending. Firstly that Firms are underprepared for ARROW visits and secondly that there is a clear change of approach by the FSA - it has demonstrably stepped up its monitoring and adopted a more interventionist approach (away from light touch regulation to ‘intensive and integrated supervisory approach’ representing ‘tougher and more intrusive regulation’). Firms can expect a much more probing and aggressive tack by the regulator.

Best Practice

FSA ARROW Governance Reviews: Be aware of the governance hotspots and make sure you are prepared

Effective governance enables a firm’s board and executive to work together to deliver a firm’s agreed strategy. In particular, it is about managing the risks the firm faces. Governance has always been high on the regulator’s agenda, however, the recent financial crisis has exposed deficiencies in the governance arrangements of many firms. Although poor governance was not seen as the only factor contributing to the crisis, it was an important one.

Best Practice

European Supervisory Authorities: Technical Standards on Risk Mitigation Techniques for OTC Derivatives Not Cleared by a CCP

The Joint Committee of the European Supervisory Authorities (the “ESAs”) published their discussion paper on draft Regulatory Technical Standards (“RTS”) on risk mitigation techniques for Over-The-Counter (“OTC”) derivatives not cleared by a Central CounterParty (“CCP”)1 on 6 March 2012. Comments were invited during the public consultation period, which ended on 2 April 2012. Stakeholders were asked to provide evidence to support their views on current methods and proposed rules, for the ESAs’ cost-and-benefit analysis.

Best Practice

Credit Value Adjustment (CVA): The Standardised Method

Rapid and continuous growth of the OTC derivatives market with a volume of over USD600 trillion as of year end 2010 and the significance of losses due to counterparty default in such contracts caused regulators to introduce new regulation requiring additional capital with respect to counterparty risk. In this practice note, we explain what CVA is, how it is measured under the Standardised Method and the key drivers that impact the amount of regulatory capital required for CVA.

Case Study

Model Development and Validation Governance and Standards

The client initiated a project to define and implement a governance framework for model development and validation, to be applied to credit risk models of its wholesale business. Avantage Reply was engaged by the client to assist with developing the governance framework in the form of a reference handbook of standards to be utilised by stakeholders of the four main stages of the standard model lifecycle; i.e. origination, development, deployment and review. The new framework provided benefits consisting of improved objectivity, consistency, control and transparency throughout the model lifecycle.

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