New Frontiers in Risk Management & Compliance

EBA recapitalization results - EU set for a busy 2012 start

spachava — 2011-12-11T21:20:52+00:00

EBA (European Banking Authority) recapitalization results were released on 8th Dec, influencing some markets and surprising some banks.

It is important to note that this exercise was not a new stress test, but an update of the Oct Stress test results with current bank holdings data. In this excercise, no adverse macro-economic scenarios were applied to the figures provided by the banks.

It is certainly going be a busy start to 2012 with the Jan 20 deadline for the banks shortfall makeup plans to their respective national regulators.

Risk expertise capacity building @ Regulators

spachava — 2011-05-03T03:53:26+00:00

Stress Testing, Liquidity risk, Basel III, Systemic Risk council, Dodd Frank,Financial Stability Oversight, Social media compliance...the risk oversight list continues on. With this increasing list, i often wonder how the regulators manage the increasing complexity of regulations as well as keep up with the complex world of financial innovation. The prestige associated with working at a regulatory body and the of course the breadth of exposure keeps attracting top talent. The ever increasing complexity, does require capacity building around Risk expertise for regulators. Also very critical to managing systemic risk, is the need to integrate the different risk supervision silos that exist within regulators.

Regulators are getting more creative about attracting the right set of Risk talent to enhance their risk expertise. This topic always comes up in my discussions with key regulators around the world. Over the years, I have been keenly following public news about regulators proactive capacity building of Risk expertise. In USA, SEC has a division dedicated to Risk, Strategy, and Financial Innovation - Risk Fin.

Cloud - Emerging patterns for Risk Mgmt. and Regulatory Compliance

spachava — 2011-04-14T20:07:14+00:00

I normally try to stay away from pure IT topics, but Cloud adoption is increasingly seen as a business model with associated risk controls, and regulatory compliance issues.

With so much coverage on Cloud's potential, I have been studying how this will impact the Risk & Compliance world. There are some interesting industry patterns already emerging that i will blog about on an ongoing basis. Today i start off with - Cloud GRC and Cloud based GRC services.

Liquidity Risk refresh initiatives get going

spachava — 2011-03-18T01:19:40+00:00

New Liquidity risk frameworks as well as Stress tests were in my top 10 list for 2011. Many leading regulators with UK FSA being the first, have issued new guidelines on this globally.

The inspiration for this blog came from a recent announcement about a leading bank enhancing its liquidity risk management capabilities.

2011 Risk and Compliance Initiatives - Top 10 List!

spachava — 2011-02-23T15:10:27+00:00

Picking up the thread again after some heavy lifting around our overall approach to Risk technology. I will share more on above in due course. Based on my discussions with companies around the world, following are my top picks for 2011 initiatives:

Future State of Risk & Compliance 2010 global benchmark survey

spachava — 2010-09-08T14:19:59+00:00

Today PRMIA & Microsoft jointly released a 2010 survey on global trends and industry view of future of risk management and compliance.

Big thanks to all of you who participated in this and to the PRMIA team (Marietta Ruppe,Cheryl Buck,Janet Tritch, Steve Lindo,Geoff Kates) for their support and help to put it together.

This survey provides a benchmark to risk and compliance practitioners across both financial and non-financial sectors.

Top 6 Basel III Design Elements

spachava — 2010-08-10T17:59:05+00:00

Regulatory Blueprint - Top 6 Basel III Design Elements !
Let us start learning LR, LCR, NSFR, Capital Surcharge,Gone Concern! A mouthful isn't it?

Well, Basel III is coming our way sooner than expected ! The much awaited (do I hear a groan!) Basel III regulation is getting its final touches.

The Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, met on 26 July 2010 to review the Basel Committee's capital and liquidity reform package. The BIS with G20 consultation is driving the Basel III release by November 2010 with an implementation start by end 2012.
The deadline for final institution level Basel III conformance though is expected to be around 2018.

Their focus is on
- quality, quantity, and international consistency of capital
- to strengthen liquidity standards
- to discourage excessive leverage and risk taking
- and reduce procyclicality

Stress Testing - Measuring Systemic Risk across the globe

spachava — 2010-07-28T23:02:15+00:00

Last year EU was exploring a Systemic Risk Council to manage risks better across the EU. A small but significant step towards a consolidated EU Systemic Risk management is the recent round of Stress Tests in EU .

As we know, the US banks underwent a similar round of Stress testing exercise early in 2009. 10 out of 19 big US banks were required to raise a combined $75billion in capital after the stress testing results.

On Friday, CEBS released the stress tests results that subject each banks Tier 1 capital projections until end 2011 to worst case scenarios.

Regulatory Vision 2020 - Top 10 list

spachava — 2010-06-08T20:53:59+00:00

I am a keen follower of the Australian regulator APRA that in my mind certainly ranks amongst the thought leaders in regulatory thinking. APRA has been at the forefront of many new regulatory concepts and pro-active adoption. Its current focus is on 3 major areas - Financial stability and systemic risk, Group Supervision, Remuneration. Their approach to reform being best captured by how they term it : just right - not too much, not too little.

Pro-active Systemic Risk mitigation by German regulator Bafin

spachava — 2010-05-22T04:59:12+00:00

There is increased speculation against euro, over concerns of euro zone sovereign debt levels triggered by the Greek debt refinancing crisis.

The euro has already hit a four year low of $1.2209. As expected and predicted in one of my earlier blogs, this crisis is forcing the shift much more aggressively towards water tight regulation mode from light touch supervision mode to ensure market stability, transparency & systemic risk management.

This week the German Federal Financial Supervisory Authority (BaFin) temporarily prohibited naked short sales of euro debt securities, naked short selling of shares in 10 leading German financial institutions, and naked transactions of credit default swaps (CDS) linked to euro govt. debt. The bans apply from May 18 2200 GMT to March 31 2011, 2200 GMT. This does not impact transactions in the specified shares that are backed by securities lending.

Future of Stress Testing - UK FSA and EU CEBS lead the way !

spachava — 2010-03-12T06:26:39+00:00

Earlier I had blogged about the pendulum shifting away from the light touch supervision mode to a much more prescriptive regulatory environment.

The new stress testing guidelines in Europe seem to be good indication of the trend. With most stress testing models failing to reflect the current crisis, many regulators are reviewing the stress testing guidelines and methodology. Typically in most markets, the stress testing is performed at 3 levels;

1.Institution level
2.Regulator stress testing of an institution
3.Industry wide Systemic level stress testing

Most of the changes focus on the first level of stress testing within institutions, but there is certainly thinking on other 2 aspects as well.

Purely going by the headlines, the Risk Managers in Europe must be quite stressed by the ongoing consultations around stress testing regulatory mandates. Let us look at CEBS & FSA in this blog;

Risk 2010 - Trends to keep in view

spachava — 2010-01-08T16:52:25+00:00

Happy 2010 to readers. Many in Risk Mgmt profession welcome 2010 with a sigh of relief, considering the financial markets turmoil and the resulting broader economic impact in 2009. So what can we in the Risk Mgmt profession look forward to in 2010?

The humbling rollar coaster ride for Risk in 2008-2009

spachava — 2009-12-24T20:49:18+00:00

It has been a humbling roller coaster ride for Risk Management globally in the past one year.

For some it has been plain scary to see the failures of much vaunted risk management capabilities, for some it has been life changing in terms of job losses and for some it has been just tremendous learning. I believe it has also been particularly humbling for all in the profession in many ways.

Some of my thoughts from Hyderabad, India as I wind down the year 2009. Merry Xmas, happy holidays and happy 2010 to all of you!

Australian secret sauce for managing risk sprinkled with APRAs Meta Regulation !

spachava — 2009-10-08T05:49:53+00:00

I was fortunate enough to have short work stints in Australia (both Sydney and Melbourne), a beautiful country with its free spirited fun loving sporty population.

I continue to be amazed at the sophistication and depth of their financial markets. There is also a lot of cross pollination of global markets expertise, ideas and world class talent between London and Sydney.

Their regulators RBA, ASIC, APRA and ACCC are amongst the most proactive and knowledgeable in the world. Australia s top 4 financial groups - Commonwealth Bank of Australia(CBA), WestPac, Australia New Zealand(ANZ), National Australia Bank(NAB) rank amongst the top banks globally. Despite the crisis all round in banks globally, all of these Australian institutions remain profitable, well capitalized and well managed. The Australian banking sectors profit margin is
robust. At 1.3% of assets, Australian banks profit ratio sits in the middle-to-upper range on the international league table.

So what is Australias secret sauce?

The Spanish approach to Risk management !

spachava — 2009-09-10T22:25:15+00:00

As a major European economy Spains banking sector has relatively fared well in the international financial crisis. Both Banco Bilbao Vizcaya Argentaria (BBVA) and Banco Santander (BS), amongst the largest banks in the world have done relatively well compared to their peers. Very few banks have needed capital infusion and government hand holding. Spanish banks have done quite well in past years fueled by a real estate boom. Of course as the real estate declines over the past two years and the economy is in recession, many banks do have heavy exposures to the real estate sector and are saddled with a rising rate of bad loans. The government is stepping up with a fund of up to euro90 billion (US$125.46 billion) to help banks restructure and cope with the effects of recession.