Data governance and end-to-end automation: Leveraging IFRS 9 technology to benefit the business

Data governance and end-to-end automation: Leveraging IFRS 9 technology to benefit the business

Sufyan, please tell our readers a little bit about yourself and your experience

I am currently heading the Pre Sales/Business Solutions team in EMEA for AxiomSL. Having over 10 years’ experience in the areas of trading and risk, I have worked with different solutions and have a deep understanding of complex business/IT requirements from analysing client’s current infrastructure to providing recommendations and best practice approach. Over the past seven years of my career, I have helped firms make informed decisions in the area of best practices in Enterprise Risk Management (ERM), covering topics such as Basel III calculations for Market Risk, Credit Risk, Operational Risk & Regulatory Reporting, Stress Testing, IFRS 9, Data Management Aggregation & Consolidation (BCBS 239), Portfolio pricing and risk for front office trading systems, Business Intelligence, Data & Analytics, Business Analysis & Implementation. Prior to joining AxiomSL in 2015, I served as Associate Director (Solutions Specialist) for Moody’s Analytics covering Enterprise Risk Solution. I have also worked at SunGard Financial Systems – FIS within the Capital Markets space, articulating client trading and risk requirements from pricing to real time risk management.

You will be joining us at the IFRS 9: Impairment and Implementation Summit in London to provide a presentation on leveraging IFRS 9 technology to benefit the business. What key aspects will you be looking to cover at the Congress?

The areas I would like to cover are:

  • The challenges in consolidating data for IFRS 9 across risk and finance and reconciling them
  • Governance processes around data, data aggregation, optimising the data lineage process and auditability of the results
  • Visualisation and automation of the end to end process all the way from data capture, data governance, classification & measurement, impairment, hedge accounting all the way to reporting (regulatory, internal or analytical reporting)
  • Versioning of the data, calculation process including the models used across the different asset classes.

What data challenges are banks currently facing ahead of IFRS 9 implementation and how can banks best overcome these challenges?

  • The level of granularity of data required for IFRS 9 is extremely high. Every financial instrument needs to be taken into consideration.  The challenges banks face are aggregating and consolidating data across a multiple source system in a user friendly way.
  • Since the granularity is high, expected credit loss needs to be calculated at every contract level to project future expected losses across multiple macroeconomic scenarios. This requires high level of automation and computation.
  • The results based on every contract including contract level information and the different macro-economic scenarios would need to be archived/historized. The ability to create snapshots of the end to end process is a challenge for banks.
  • Once banks start parallel runs, it will generate huge volumes of data across different periods along with different scenarios, simulations, model and model data inputs used.  Governance and auditability across this entire process is a big challenge.

How can AxiomSL assist banks leverage technology to meet IFRS 9 requirements and gain a competitive advantage?

AxiomSL’s solution supports the key aspects of IFRS 9. It aggregates the necessary data, including financial, risk and macro-economic data from our client’s systems without going through an ETL process. It then applies validation checks to ensure it conforms to high standards of data quality. User control functionality facilitates collaboration between different functions, such as risk and finance, and supports sound data governance practices. Once a firm’s data has been aggregated, the solution automatically feeds it through the business rules that AxiomSL has built to determine how individual assets should be classified. Based on the results, the amortized cost and fair value figures are calculated. Proprietary or third-party models can be easily integrated into the solution and used to calculate the ECL.
Once the asset measurement and ECL calculations have been completed, the solution can represent the results in accordance with the IFRS taxonomy and produce both standard IFRS and management information (MI) reports. The unparalleled transparency offered by AxiomSL includes the ability to drill down from the final report values to the source data, and allows users to make manual adjustments if required. The flexibility of the solution allows users to do scenario testing, exploring how their provisioning requirements will be impacted by different. The entire process is end to end within AxiomSL, with the user having the flexibility to audit at every stage of the process.

In general do you believe banks and the industry are prepared for 2018 implementation?

On speaking to a lot of banks within the EMEA region we find that not a lot of them have fully grasped the implications, not to mention not a lot of them have enough resources in terms people and systems to deliver the changes by 2018. Also a majority of the banks are unsure how this would impact their balance sheet. However they are aware that the new change would significantly increase their provision amount and would significantly impact their tier one capital but they are not aware of the full implications. The challenge would be measuring impact analysing during parallel runs in 2017, analysing change in provisions as well as making this a business as usual activity going forward.

How do you see the role of accounting and credit risk professionals concerned with IFRS 9 changing over the next six to 12 months?

We see more alignment of risk and finance professionals within a bank. First this used to be a disjointed junction under IAS 39, whereas now it’s not just risk and finance but IT as well who need to work together. It is a combination of two different approaches within an organisation – where risk management works on a principle-based approach, and finance who work on a rule-based approach – need to be aligned. Risk management take ownership of credit risk models to generate PD, LGD and EAD, while Finance and Accounting for Classification and Measurement of the different instrument types including reporting, and IT to ensure the granularity and consistency of the data and ensuring the run of the end to end process.

 

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