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Integrated Risk Intelligence
Strategic journey through smart decisions
Corporate treasury has evolved into a pure strategic function. A corporate treasurer or a chief financial officer (CFO) requires an understanding of liquidity and financial risk, complexities of the regulatory environment and other external business challenges that may cloud the vision of achieving treasury objectives. Our Financial Risk Advisory practice comprises of services specifically tailored to support financial institutions in managing risks and discover new opportunities for value- creation. We provide services across multiple domains under treasury management, risk and capital management, quantitative modelling, and technology services.
Reserve Bank of India (RBI) has moved towards a risk-based supervision approach from the earlier transaction-centric CAMELS and CALCS approaches. The RBS process covers assessment of the Bank’s management of associated risks and financial vulnerability to potential adverse experiences. This process is forward-looking with a focus on evaluating both present and future risks, identifying incipient problems and facilitating prompt intervention. This new approach is expected to significantly change the approach towards supervision, and banks need to meet requirements of the revamped supervisory process.
Risk-based supervision(RBS) is a structured process that identifies the critical risks that banks could be impacted through a focused review by the supervisor, and assesses the bank’s management of those risks along with its financial vulnerability.
Risk Data Management Services
One of the most significant lessons learned from the global financial crisis that began in 2007 was that bank’s data architectures and systems were inadequate to support the broad management of financial risks. Financial institutions lacked the ability to aggregate risk exposures and identify concentrations quickly and accurately at the group level, across business lines and between legal entities. Financial institutions were unable to manage their risks properly because of weak risk data aggregation capabilities and risk reporting practices; this has severe consequences to the stability of the financial system as a whole.
Capital Management and Internal Capital Adequacy Assessment Process
The regulators introduced capital planning and specifically ICAAP as an opportunity for banks to improve the risk management culture and systems within the organization. The key reason for its introduction was to overcome the shortcomings of Basel I by forcing financial institutions to develop tailor- made risk management system as a component of Pillar 2. Recent crisis has also reinforced the importance of a robust ICAAP at the root of sound risk management programme.
Market Risk and Asset Liability Management
In the wake of the recent upheavals, market risk and asset liability management is undergoing significant change with stringent risk assessments. Regulators have begun to demand more transparency. They want to know the market risk profile, including short term profit and loss (P&L) volatilities and long term economic risk, understand how much risk has been accumulated by the banks and how the aggregate risk compares with the bank’s approved risk appetite. Further, new regulations have a potential of creating bigger regulatory burden for banks. Effective market risk management can therefore help banks to navigate the ever-changing regulatory and business landscapes.
LIBOR Transition: Global Interest Rate Benchmark Reform
With over three hundred trillion dollars in bonds, derivatives, securitisations and deposits referenced to Interbank Offered Rates (IBORs), the global transition to alternative benchmark rates is one of the most challenging reforms to be undertaken in the next three years.
Credit Support Annexure: Leveraging CSA for Collateralised Margining
A CSA regulates collateral under the ISDA Master Agreement by defining the terms and conditions under which collateral is posted to mitigate counterparty credit risk. Under the present supervisory environment, a CSA is usually required for banks or financial institutions designated to act as “calculation agents”. CSAs can be either ‘unilateral’ signifying that only the lower rated counterparty be required to post collateral, or ‘bilateral’, wherein either party to the agreement may be required to post collateral.