BASEL ROADMAP BLACKICE INC. REFERENCE PRESENTATION FEBRUARY 2017

Transcription

1 BASEL ROADMAP BLACKICE INC. REFERENCE PRESENTATION FEBRUARY 2017

2 BASEL ROADMAP BASICS

3 BASEL IMPLEMENTATION VS. BASEL COMPLIANCE 3 In order for an instittion to sccessflly meet BCBS and regional SBV Basel reglations, two components are necessary: Sccessfl implementation and governance of a Basel Program; and An ongoing accrate and comprehensive compliance self-assessment against Basel reqirements. An instittion s approach to manage a Basel Program is an inpt into the compliance self-assessment. Governance Governance Approvals Resorces Monitor Identify Measres of Sccess Testing Deliverables Report Assessment Project Implementation Compliance Assessment

4 The 3 Pillars of Basel II 4 Basel II Capital Accord 1. Minimm Capital Reqirements 2. Spervisory Review 3. Market Discipline Three different approaches to calclate minimm capital reqirements for: ü Credit Risk ü Operational Risk ü Market Risk (Two) Compliance defined re. each approach Incentives to move to more sophisticated risk management approaches Self assessment for capital adeqacy Spervisory review Expectation of higher capital than minimm Intervention at an early stage as prevention Improved Disclosre of Capital Strctre Improved Disclosre of Risk Measrement and Management Practices Improved Disclosre of Risk Profile Improved Disclosre of Capital Adeqacy Implementation Components Data Bsiness Process Reglatory Disclosre

5 Where To Start Along The Pillars What s in Place 5 Basel II Capital Accord 1. Minimm Capital Reqirements 2. Spervisory Review 3. Market Discipline Data Bsiness Process Reglatory Disclosre Starting Point Info Assessment Data History / Qality Risk Models & Ratings: PD, EAD, LGD Rating Scales Policies & Governance Systems & Processes Docmentation Capital Testing Reporting Org / People Methodologies & Tools Segmentations Prodcts / Markets Process Tools

6 KEY BASEL ASSESSMENTS & DELIVERABLES 6 The identification of key deliverables necessary to demonstrate adherence to Basel and SBV gidance will leverage a self-assessment against crrent activities verss end-state, and inclde the following six areas. Governance & Policies Internal & Reglatory Reporting Impact to internal processes and resorces Implementation of Calclator Impact to Sorce Systems Identification of Data

7 OVERVIEW ROADMAP FOR BASEL II

8 ASSESS THE OPERATING ENVIRONMENT IMPROVE WHAT IS ALREADY IN PLACE 8 Governance Sbject Matter Experts Cstomer Management Origination Underwriting Facility Management Collateral Management Collection / Recovery Portfolio Management Financial Management Reporting Org / People Process Tools Gaps CRM & Packages Decision Spport / Bsiness Intelligence Data Warehosing / Data Management Sb-Ledger / Acconting Systems G/L & Financial Reporting Process Systems Data Models Organization Areas of Focs Scope For Exection

9 PUT THINGS TOGETHER - HAVE A FRAMEWORK 9 Ratings & Models PD LGD EAD PD LGD EAD Analytics & Reporting Data Definitions Model Data Data Analytics Obligor Exposre Defalt Governance Data Repository Data Architectre Report Data Reporting Store Data Sb-Ledger Underwriting Processes & Systems CRM Asset Mgt Collect Data Resorces & Management

10 A DATA ARCHITECTURE PERSPECTIVE IS CRITICAL Internal Sorce Systems Common Operational Framework M e t a d a t a Pre-reqisite Data Bsiness Metadata 10 Core Banking Credit Cards Sorce Traceability Validation Market Risk Risk Analytics And Modeling Market Risk Engine Specific Views General Ledger External Systems External Ratings Market Data ETL Data Qality Edit and Reload Adit Trail Warehose Staging Credit Risk Operational Risk Credit Risk Engine Operational Risk Engine Financial Modeling Engine Fnctional Domains Analytics Reporting ETL Common ETL Layer Enterprise Wide Model Fnctional Modeling Bsiness Intelligence Data Management Data Layot Data Processing Data Delivery

11 PUTTING DATA TOGETHER THE DATA MODEL 11 Granlar Data Captred Calclations Data Dictionary Cstomer / Party Information Underwriting Scores / Credit Ratings Cstomer Facilities Accont Balances Collection Transactions Loss Events Asset Classification / Prodct Linkages Exposre At Defalt Loss Given Defalt Probability of Defalt Stress Testing Effective Matrity Data To Be Collected Mst Be Organized In A Fnctional Model Cstomers Transactions Organization Enterprise Risk Data Model Market Risk Credit Risk Assets Agreements Prodcts Locations Operational Risk Finance Enterprise Wide Model Earnings At Risk Implementation Considerations Pre-defined Basel II data model available with Data Dictionary Mapping data to sorce systems will reqire the most effort Docmentation & Data SME s critical to the process

12 GOVERNANCE & POLICIES 12 Creation of new polices sch as: - Risk Management Framework - Risk Appetite Framework - Stress Testing Policy - Economic Capital - ICAAP Manal - Line of Bsiness Lending Practices - Data Governance - Operational Risk Framework - Model Validation Policy - Liqidity Risk Management Policy - Trading and Non-Trading Standards - Capital Markets Risk Management Framework - Bsiness Continity Management - Anti-money Landering - Recovery Plan - Roles and Accontabilities

13 BASEL II PROGRAM ORGANIZATION 13 Denotes core Basel Project Management Office resorces Denotes individal work streams for project exection and other content expertise Exective Sponsorship PMO Leadership Reglatory Bsiness Technology Basel Exective Steering Committee Core Advisory Grop (1) Third Party Advisors Retail Small and Medim Enterprises Credit Risk Corporates, Sovereigns and Banks Indstry/ Reglatory Reglations Secritiz- Ation Trading Room Non - Trading Eqities Market Risk IRRBB Market Risk Technology Special Projects (2) Program Control Office Portfolio Facilitator (3) Portfolio Facilitator (3) Operational Risk & Other Work Streams Notes: 1. A sbset of the Basel Exective Steering Committee that meets more reglarly and is able to address rgent high-level isses 2. Incldes Bsiness Management, Commnications and other special projects (e.g., Data Governance, Secrity, Program Integration Testing, Reconciliation and Adjstments and Reporting cycle, etc.) 3. Portfolio Facilitators report into PMO Special Projects Market Discipline Portfolio Facilitator (3) Operational Risk Portfolio Facilitator (3) Internal Adit Portfolio Facilitator

14 EXAMPLES OF CREDIT RISK PROJECT SCOPE

15 SAMPLE PROJECT: IMPLEMENTATION OF RWA ENGINE Initiative Objectives 15 Generate RWA, capital reqirements for market risk and operational risk and CAR Generate Dashboard to satisfy SBV disclosre reqirement and/or Pillar 3 disclosre reqirements Key activities Obtain/ develop data mapping/ reference data mapping specification/ technical and infrastrctre specification from client which data sorce (at accont level, i.e. loan, investment, trade finance, garantee ) Develop configration and configration specification for RWA calclation. Configration will contain bt not limited to the following information: Mapping logic from core banking/sorce systems to engine for credit risk, market risk and operational risk Calclation specification Complete ETL process based on Data Mapping Specification and Reference Data Mapping Specification Deploy RWA Engine and generate SBV reports/ Pillar 3 reports Perform SIT&UAT Final deployment and post implementation spport Bild operational model for consolidation process (Roles and Responsibilities for ongoing process) Deliverables Data mapping/ reference data mapping specification/ technical and infrastrctre specification Configration and configration specification RWA engine and dashboard for reporting Selected management reports and operational model Others Project dration: 6 months Key benefit: RWA engine Improve data mapping/ reference data mapping specification/ technical and infrastrctre specification Dashboard for SBV disclosre and Pillar 3 disclosre Better CAR management Minimm Hman resorce reqirements Basel team: Finance/ acconting team: o 1 Manager o 1 Manager o 4-5 Senior/staff o 1 Senior IT team: Bsiness nit (if needed) o 1 Manager o 1-2 Senior

16 SAMPLE PROJECT: CONSTRUCT AND COMPLETE ALL POLICY, PROCEDURE FOR CREDIT RISK MANAGEMENT Initiative Objectives 16 Enhance crrent existing policies and bild new policies for credit risk management to comply with Basel II Key activities Strategies/ Policies for credit risk are needed to be bilt/ completed: RWA calclation (bilt when implementing RWA soltion project) Strategy/ Risk appetite (bilt dring implementing ICAAP project) Credit risk management policies, e.g. credit rating policy, credit athorization, credit risk assessment, special borrowing policy, real estate lending Portfolio management (bilt dring implementing project to bild comprehensive policy for loan portfolio management) Early warning system (bilt dring implementing early warning system project) Credit rating system and modelling (PD, LGD, EAD) (bilt dring implementing related projects) Stress-testing (bilt dring implementing stress-testing project) Bild gidance and process accompanied to these mentioned policies Deliverables Roadmap for development and enhancement of all policies and procedres to spport Credit Risk Management Official docmentation for Credit Risk Policies and Procedres Others Project dration: 6 months and continance process Key benefit: Give BOD, Senior Management, and all staff fndamental nderstanding and control of credit risk management Basis for all related projects to be planned and implemented Increase/ enhance bank s capability of nderstanding and managing Credit Risk Minimm Hman resorce reqirements 1 manager 1 senior officer and 3 staffs from credit risk department 1-2 senior officer from wholesale department 1-2 senior officer from retail department

17 ICAAP

18 THE ICAAP USE TEST 18 Governace & Controls Internal Capital Adeqacy Assessment Process (ICAAP) ICAAP Self-Assessment Package (SAP) Yes Capital Adeqate? No RC ICAAP Tier1 Reglatory Reviews Internal & External Adit Policies and Procedres Board RMC / AC CRC / GCC / SET Risk Management Finance/Treasry CRC/ALCo/RMC Financial & Strategic Plans (Finance) Risk Appetite Capital Plan Financial & Strategic Plan Liqidity Management BSRA Process Enterprise-wide Stress Testing (Risk Appetite metrics, P&L, Reqired and Available Capital, Stress Impacts, Liqidity metrics, Limits) Capital Plan & Liqidity (Treasry) Aggregation, Linkages and Reporting Stress Testing (Finance/RM) Reglatory Capital (RC) (RM) Reconcile Economic Capital (EC) (RM) CRC/ALCo/RMC Risk Measrement, Monitoring & Reporting MPRC/CMRC/ CC/IC Credit Market Oper'l Other Liqidity Other Vetting/Validation Concentration/Diversification VaR Limits Stress Testing CRC/ALCo/RMC NIAP, RSA, RLR Risk Identification Environmental scans Credit Market Oper'l Other Risks Emerging Risks Mitigation Bsiness Reviews

19 ICAAP RISKS THAT NEED TO BE ASSESSED 19

20 RISK APPETITE FRAMEWORK 20 The Enterprise Risk Appetite Framework (RAF) sets ot the Bank s overall approach to risk appetite and provides a common nderstanding among stakeholders of how risk appetite is established, managed and governed. It spports the establishment and ongoing effectiveness of the Bank s Risk Appetite Statement (RAS), associated metrics and limits, and sets ot the roles and responsibilities in the governance process. The RAS articlates the aggregate level and types of risk the Bank is willing to assme, or to avoid, in prsit of its strategy and bsiness objectives and sets the basic goals and measrement metrics, which defines tolerance levels for varios risks. As shown in the diagram below, a risk appetite is informed by the Bank s vision, mission, and vales as well as strategy and objectives; it also considers risk capacity and associated constraints. Risk appetite is articlated in the Bank s RAS which incldes qalitative and qantitative elements as well as limits to define the level of risks the Bank is willing to take on in prsing its strategic objectives for bsiness growth and shareholder retrn. The RAS spports a Enterprise Risk Management Framework which sets ot the Bank s approach to risk management, and is in trn spported by risk limits, policies, standards, procedres, processes and controls.

21 CAPITAL MANAGEMENT AND PLANNING 21 Basel II reqires Banks to take a nmber of factors into accont for capital planning: Capital adeqacy Impacts of planned capital activities on overall capital levels and bsiness mix Consistency of capital plans with strategic plans Consistency with the risk profile and crrent and prospective operating environment Risk / Retrn tradeoff Net income and its variability Forward looking stress tests and scenarios The bsiness cycle and potential adverse changes in market conditions

22 ENTERPRISE-WIDE STRESS TESTING 22 Basel II reqires Banks to condct stress testing to help assess capital adeqacy and risk appetite. Stress and scenario analysis are sefl in assessing economic downtrns and bsiness cycle impacts. Comprehensive stress testing shold be embedded into the risk management framework of the organization. A Board approved Stress Testing policy is necessary to ensre the reqired standards and procedres exist to satisfy reglatory reqirements nder Pillar II of the Basel II Revised Framework and help test the adeqacy of capital dring stressed bsiness conditions. This involves the se of varios techniqes to assess the potential vlnerability to stressed bsiness conditions. Key principles of the policy and for effective enterprise-wide stress testing inclde: Stress testing shold be integrated into the firms risk management framework inclding limits, risk appetite assessment and capital management/planning; Stress tests shold be plasible and measre the effect of extreme moves in risk factors; Comprehensive stress testing shold inclde mltivariate analysis, sensitivity and scenario based tests. Stress tests shold inclde scenarios that stress several factors at the same time becase in reality, when stress events occr they are more likely to involve adverse moves in several risk factors; Stress scenarios shold cover on- and off-balance sheet positions of all major portfolios in the trading book and the banking book. They shold also reflect specific risk characteristics of the portfolios. All related risk factors shold be identified and stressed; Comprehensive docmentation for scenario development, selection of risk factors, translation of scenarios into impacts on risk factors and parameters, and remedial actions when pre-established limits are exceeded; Stress testing shold be consistent with activities for Recovery and Resoltion planning.

23 ENTERPRISE-WIDE STRESS TESTING 23 While stress testing may be well developed, it is often done in isolation for specific risk types and portfolios. The challenge is integrating this on an enterprise-wide basis. Process: Economics to provide gidance on a handfl of variables (sch as GDP, inflation, nemployment rate, short term interest rates, stock market movement etc) for specific macro economic events (Recession, Pandemic, Inflation Escalation, etc.). Individal Work Streams to arrive at risk factor shocks relevant to their portfolios based on general direction from Economics. Work streams also to have their own portfolio specific scenarios and will develop procedres, processes and the technology infrastrctre to enable calclation of stress reslts. Stressed loss and capital calclations to target initially a one year time horizon in order to enable aggregation and comparison against capital. This time horizon will then be extended as experience develops in line with the risks in the portfolios. Consolidation of Stress testing reslts across the enterprise for analysis and reporting to Senior Management to take place on a best effort basis ntil systems allow for reglar and timely rns. Reslts prodced by each bsiness grop to inclde losses and changes reqired in Economic and Reglatory capital.

24 COMPLIANCE SELF ASSESSMENT

25 BLACKICE SOLUTION - GCD 25 The Governance & Compliance Database (GCD ) is an application that allows financial instittions to assess adherence to Minimm Reglatory Reqirements, gidance defined by the reglator or to reqirements specific to the instittion (e.g., internal expectations, policies, indstry best practices etc.). It facilitates the captre of compliance information to meet reglatory, Board and Senior management responsibilities inclding: Gap assessments; Compliance stats; Commentary evidence and spporting artifacts. The primary benefit for a reglator is that the GCD provides a view to an instittion s assessment, and provides a consistent approach to allow the comparison of assessments across mltiple instittions. The GCD also mitigates the risk and challenges often faced by reglators in completing their reglatory oversight.

26 INTERPLAY OF THE THREE BASEL PILLARS 26 While the three Pillars are independent they interact in the following ways: Pillar I calclations are tested by the ICAAP process in Pillar II for completeness and congrence of risks and capital. - Stress testing is an example of sch a Pillar II test. Pillar I will also provide a new feedback loop with Pillar II, for example based pon nexpected credit migrations relative to prior expectations. Feedback from pblic disclosre from Pillar III will inform Pillar II discssions as to conservatism and provide benchmarking opportnities that do not exist today. Varios forms will commnicate and allow an nderstanding of the impacts of these feedback loops inclding: The Risk Management Committee of the Board. The Senior Exective Team. Balance Sheet Measrement, Monitoring and Control, especially with respect to the capital planning process. A Models and Parameter Risk Committee.

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