Ahead of the 6th Annual Risk Americas 2017 Convention, Sammy Chowdhury, Co-Founder and Partner at enableIT LLC. discusses how the current legislative efforts to deregulate in the U.S. and elsewhere will impact the Risk Management profession
- Sammy, can you tell the audience about yourself and how you came to work in risk management?
I’m a partner and the head of risk and regulatory practice at enableit. We are a risk advisory focused on cyber and financial risks. My team and I help clients achieve compliance and profitability outcomes through better risk governance. I started my career in capital markets technology but pivoted to Risk Management during the financial crisis. I’ve now spent over a decade in client facing consulting roles managing Risk, Regulations and Data Governance change projects. I went to Columbia University for my Masters and researched Counterparty Risk via Graph Network Analysis.
- How do you think the current legislative efforts to deregulate in the U.S. and elsewhere will impact the Risk Management profession?
In my current role as a practice manager, I hire and develop Risk and Data experts for various regulatory changes. CCAR, although a very costly initiative in terms of structural and business model changes, was a “job creating” regulation for risk and regulation experts. CCAR Banks had to hire an army of internal and external resources quickly to build the change programs. For example, we worked on modeling RWA, PPNR, and Balance Sheet projections for CCAR and calculated stressed VARs and designed scenarios for stress testing for our client’s capital and liquidity levels. We have also provided 3rd line of defense in internal audit and successfully remediated MRAs in CCAR. Currently, all of these programs are migrating from change the bank (CTB) to run the bank (RTB) processes. As a result, they are either being pushed to a low cost location or being reduced in headcount significantly. The reduced focus on capital regulations to increase lending by the new administration has left a large number of Risk professionals wonder how to migrate their recent experience in FRY-14A/Q/M reporting and modeling to other parts of the business.
- Please share some skill migration strategies for folks with recent regulatory compliance experience.
If you want to stay in the regulatory regime, the answer is rather simple- chase the next reg. You should be checking the progress on rule making process on new regulations such as FRTB or CECL or TLAC with respective regulatory agencies. Another good place would be following a recent regulatory fine imposed using any existing rules and laws (AML/Volcker). If you want to make a change, look into demonstrating your capability in the areas of data or technology or operations. Data Quality is a big driver for regulatory compliance tasks so your data mapping/ reconciliation skills can easily transfer into other data governance initiatives driven by market forces where focus is client segmentation or product recommendation. Technology is driving a lot of compliance automation initiatives so you may look to become the liaison between business and IT and help bridge development and acceptance of business requirements. If you are a quant with strong modeling background, you may focus on model validation or may look into assessing conceptual soundness of methodologies as your next adventure. Audit always looks for professionals with quant background to better assess control weaknesses. Operation groups are going through major disruptions due to roll out of Robotic Process Automation tools and Cloud based services, which will require redefining existing business rules and models with the help of operational risk and controls professionals. Last but not the least, we are cross training risk and control folks into IT Risk space (Cyber/ InfoSec) which is exploding in market demand.
- Have you been able to successfully migrate skills for your teams in any of the areas mentioned?
Liquidity Risk Management is an area for example where we have taken regulatory reporting experts in LCR/5G and transitioned them into areas of Liquidity Stress Testing. Boards have learned a hard lesson from the last crisis that a perfectly capitalized bank can crumble due to liquidity and funding crisis. Areas such as Stress scenarios for secure and unsecure products, Liquidity Accounting Consistency process, Liquidity to Balance sheet reconciliation, Back testing, Sensitivity analysis, Daily/weekly/monthly cash flow projections are key to managing day to day business. It is important to make people think about how liquidity impacts business decisions outside of treasury and risk and in the areas of product control and product development to be competitive in the current growth environment. We should be thinking about balance sheet KPIs, interest income forecasts and modeling the impact of interest rate sensitivity to help support business planning and resource optimization. We should monitor deposit portfolio to explain client behavior and volatility trends. We should create pricing strategies that exceed targets on deposit growth campaign. We should help reduce balance sheet by any value destroying deposits and stranded liquidity while maintaining client relationships and their valuable payment and clearing business. Many of these regulations focused too much on back office data but we need to start thinking about their impacts on front office activities such as sales and trading. Funding valuation adjustments and fund transfer pricing have to be monitored carefully to sustain profitability. We are helping clients develop expertise in areas of Forward Cash Exposure Framework components such as: liquid assets buffer, contractual cash flows, behavioral cash flows, collateral postings and on-and off-balance sheet. More specifically, we are focusing on key behavioral options in deposits for both demand and time, pre-payable/revolving loans and liquidity/credit facilities. We are stressing deposit withdrawals by segmenting deposits, modeling withdrawals of non-maturity liabilities with stochastic factor overlay and most importantly emphasizing on reality check via deterministic approach and peer review.