To increase risk awareness through analytical insight
Do banks act wisely to implement the right analysis and marry them properly to existing systems?
“This really depends a lot on how banks will use technology and will use it to make that change,” according to Martim Rocha, director of risk management, SAS and Global Solution Leader for IFRS 9 and Stress Testing. “Because what we’re talking about here – risk and finance – really boils down to the fact that you have to have the information and to have the data in the banks that is really shared across the business. And it’s not just risk and financing alone. At the end of the day, you also need marketing and you need sales.You need everyone involved sitting at the same table.The point is that there are also banks that have been through a long journey that have have faced acquisitions, mergers, etc., and now have to deal with a large number of legacy systems. They face many challenges in bringing these systems together. “
Once analytical CROs and risk-conscious CFOs understand the types of analyzes that can be performed and the speed at which they can be performed and summarized, they will quickly realize that this will be a critical financial and capital planning capability that can also be used to make better capital allocation and business decisions.
It is also important that the finance and risk functions work together to understand model risk, exert greater control over model libraries, and tight modeling budgets and audit processes.
To gain a better understanding of the risks presented by a given model, risk and funding must work more closely in model development and life cycle implementation. Thus, the two functions must push to reduce model spread and put a structure on the multiplication of models, leaving fewer dark corners from which model risks can arise.
Making the economy more aware of the risk will prevent risk analysis data from being divided into the risk, where it would be invisible to the finance department. More coherent data and information sharing between risk and finance will allow finance departments to use regulatory data in key processes such as budgeting and stress testing.
The need for good / appropriate models (and a risk platform capable of performing scenarios in a timely manner)
An integrated approach enables monitoring and orchestration of the entire IFRS 9 process and more. The key differentiator of an integrated approach is that the risk and finance teams can perform sensitivity analysis (for example, due to different scenarios, type of expected credit loss models and business assumption or rules) immediately to see the effect on the balance sheet and income statement.
Traditionally, risk and finance groups in a bank operate separately with limited interaction. The challenge of the new IFRS 9 and the CECL rules introduced requires the two groups to work more closely together. According to the operating model, risk and finance traditionally use separate and dedicated IT applications, but for efficient management of IFRS 9 and CECL processes, both functions must share the same IT environment.
Furthermore, these two groups can easily work together to see how different business assumptions can affect a bank’s financial condition and create the best strategy for the bank. The key points are that the analytical CRO will pursue, in collaboration with the risk-conscious CFO, a growing collaboration that will have a positive impact on the company’s business..