Increased rigor of documentation requirements to regulators to demonstrate control over risk taking activities

Increased rigor of documentation requirements to regulators to demonstrate control over risk taking activities

Will Newcomer, V.P. Strategy and Market Management, Finance, Risk and Reporting at Wolters Kluwer shares his insight on aligning teams to increase rigor of documentation requirements. 
Will, can you please tell the Risk Insights readers a little bit about yourself, your experiences and what your current professional focus is?

I have more than 35 years of experience in risk and finance with major and regional banks as well as leading technology firms. I use this experience to help financial institutions in the areas of risk adjusted performance management, budgeting and planning, asset and liability management, incentive compensation, financial reporting and stress testing. I am currently the Vice President and Market Manager, Finance, Risk & Reporting, for Wolters Kluwer. I work closely with sales and product managers to help determine the needs of potential customers and provide technical assistance regarding the performance of Wolters Kluwer’s solutions.

When considering aligning teams for increased rigor of documentation requirements to regulators to demonstrate control over risk taking activities. Why is transparency essential?

CECL will impact Financial Institutions in ways far greater than we know at this time. They will need to have an end-to-end view of the CECL process encompassing Finance, IT, Risk, Reporting, Governance and Compliance just to bring the teams together and enable them to work coherently. CECL is not a once or twice a year exercise in what could happen, it is business as usual and must be performed in an everyday / everywhere fashion. The only way to bring all the parts together and effectively explain and defend your CECL results is through a complete and transparent documentation process.

In your experience, how can financial institutions best manage communicating and justifying decisions? And what are the implications if they do not manage it successfully?

Such a formidable undertaking as CECL will require effective communication among all the business functions on a frequent basis, so it is vital that all processes are transparent, efficient and repeatable. Although the CECL disclosures are made under GAAP, they are still forecasted numbers and will be incorrect in one degree or another. Communicating clearly and effectively is the only way for financial institutions to justify their expected credit losses and the variations that result over time. Clear and effective communication requires a completely transparent process and documentation system that covers every aspect of the process. Anything less is opaque at best, a black box at worst, and will invite all kinds of problems – financially, legally and reputationally.

At the CECL Congress you will be speaking on your insight regarding – Aligning teams for increased rigor of documentation requirements to regulators to demonstrate control over risk taking activities. Why do you believe this is a key talking point in the industry right now and what can risk professionals gain from this insight?

Financial Institutions have been heavily focused on the data and calculation requirements for complying with the new CECL standard, and have done so for good reason as they are the heart of the disclosures. However, I believe that CECL planning teams will do a disservice to their institutions if they only look to meeting the first filing date. These planning teams should be researching and building into the CECL process a much longer term view, one that builds into the framework tools and procedures for handling the inevitable questions and problems arising post implementation. Yesterday’s MS Word documents and workflow tools won’t get you through the process or the review, so Finance and Risk professionals responsible for successfully rolling out CECL need to look to the long term to understand how to build a defensible CECL process.

What does the future look like for the Risk Professional right now? And what changes or problems do you see in the horizon and theoretically, how would you tackle these?

As CECL touches on the principal functions of finance, risk and regulatory reporting within an organization –– it is essential that the organization deploy the systems as well as the brainpower of its human experts, to support all three. Expertise in one or even two is not good enough. Once the right systems are in place, the dovetailing of management and regulatory objectives permit firms to leverage the systems to accommodate the need for greater cooperation and communication among functions, particularly risk and finance, and at all levels of management in all places. I think CECL, at least its proper implementation, will usher in new life for risk professionals and change the focus from just surviving (prudential stress testing) to thriving. CECL will accomplish what stress testing didn’t, actually bringing Finance, Risk, IT and Compliance together in a BAU fashion. No more once or twice a year project, but BAU – every day and everywhere. Risk Adjusted Performance Systems will finally have all the components, and budgeting and planning will be part of it. It will be great to be a banker again.

Will will be delivering a presentation at the CECL Congress 2017 on key topics, such as: Aligning all teams and documenting and justifying process and all decisions, modelling and back testing models, transparency and BCBS 239 framework of governance, data and management.