Financial Technology Cases

OVERVIEW

Large and small banks and financial institutions have more to worry about than ever when it comes to risk and compliance management. Understanding the current environment facing banks today will help us develop new strategies for implementing risk assessment programs and leveraging technology to take a more holistic approach to risk assessment and compliance.

CHALLENGES

Many organizations operate their risk and compliance management processes in siloes. This limits collaboration and information sharing. Without a unified understanding of risk and compliance activities within an organization, it can be hard to make accurate, swift decisions.

Further, manual risk and compliance processes take up time and are inefficient. They’re also expensive. Without the ability to scale, in-house systems and applications have a hard time meeting the demands of assessing risk levels and developing compliance initiatives. Management also has a hard time getting a clear picture of their organization’s most significant risks and threats, including areas of non-compliance.

Our client has been a trusted resource to the financial services industry, serving national clients such as banks, credit unions, foreign agencies, and financial institutions. Like other companies, their BSA/AML and internal audit teams used Excel spreadsheets for managing daily work. The system worked, in practice, but it wasn’t highly efficient. It also left a lot of room for human error. This led the internal audit team to seek out new tools that could automate processes and help with data collection, analysis, and reporting.

“We were working hard every day to do our jobs to the best of our ability, but without a system that could effectively support us or show us our inefficiencies, we weren’t having a meaningful impact,” says Risk Analyst.

APPROACH/SOLUTION

Our client needed software that could automate the repetitive portions of compliance so they could switch their focus to keeping their business safe instead of performing mundane tasks. They use our GRC tool to simplify the process of creating test plans and gathering evidence. They can then deliver an informed opinion based on the data.

Our application can streamline the number of controls required for your business in order to stay compliant. This means your organization will become more efficient and better able to use your compliance resources. By moving away from manual spreadsheets to an automated environment, our solution takes out the risk of human error and provides a more streamlined process. It’s able to grow with the company and you can scale it as needed.

RESULTS

You can see the results almost immediately. To start with, you gain full control of your risk program thanks to our agile rules engine that you can configure for your organization.

1
Application:

The application can be custom-tailored for your specific risk process. We have an information risk proven process that you can use as a baseline. Customize it from there for your specific processes.

2
Workflow:

Our powerful workflow will help you delegate identification tasks and link form process
owners to different systems.

3
Asset identification:

Identify assets and then categorize them by risk level.

4
Threat inventory:

Customize your threats and risks inventory to develop rules so you can assess for things like intent, capability, and targeting.

5
Configurable risk scoring:

You can set rules for calculating risk, both inherent and residual, and use any of the custom fields that you’ve added to the application.

6
Custom assessment report:

Utilize your assessment reports so you can output risk information that you collect at every step in a way that makes sense for your organization.

TECHNOLOGIES

Symfony

React.JS

PostgreSQL

OVERVIEW

The new accounting standard CECL (Current Expected Credit Loss) will go into effect in 2020. It was issued by the FASB (Financial Accounting Standards Board) and will change how financial institutions account for and record credit losses. Banks will need to record credit losses at origination and calculate based on a “life of loan” loss expectation. In addition, they’ll need to forecast all future losses. Changing future economic conditions are going to play a large role in determining the credit loss estimate for CECL, so having accurate forecasts will be key.

CHALLENGES

Challenge 1: Calculation complexity

While manual spreadsheets such as Excel will still be acceptable means of bookkeeping for CECL, they most likely won’t be able to keep up with the more complicated and complex calculations that are going to be required. Banks should adopt new automated processes to streamline calculations and allow banks to accurately document their calculations.

Solution: Workflow Automation and Business Rules Management System

Banks will need a system that’s flexible and adaptable, like a business rule management system that can work alongside a core system. CECL software allows banks to create and run test models so they can assess the complexity of their calculations.

Challenge 2: Deciphering Trends

Accurately forecasting expected loss is one of the biggest challenges that CECL presents for banks. They won’t be able to count on manual processes for modeling and calculating life of loan losses. FASB has identified some loss rate methods, such as vintage models and discounted cash flow methods. But banks will still need to understand how their loans migrate to different risk categories over time to determine which estimation model will work best with the bank’s current loan portfolio.

Solution: Analytics and Reporting tool

Adopting CECL software with a built-in analytics and reporting tool will give banks the analytical support they need to accurately forecast their loss rates. These types of systems take data from several sources and analyze it in a core framework with several types of modules. The reporting tool will automatically generate reports based on the data that’s been analyzed to help banks figure out if their loan portfolio needs to be completely overhauled and which loan types, if any, should be avoided. The reporting tool can help a bank make informed decisions about their capital needs so they can make plans for the future.

RESULTS

Our CECL application offers a solution for banks and financial institutions making the transition to CECL, including:

  • Interactive graphs
  • Dynamic filtering capabilities
  • Detailed analytics and reporting
  • Asset pool and individual loan analysis

With our CECL software, you can access historical information and easily adjust for both past events and future conditions, allowing you to develop reasonable forecasts of expected credit losses over the life of each loan and asset. Use different methodologies based on the asset pool and subcategories that you choose to create for your asset pools.

CECL offers several loss rate methods, including static pool, remaining life, and vintage, along with non-loss rate methods, like discounted cash flow and probability of default. These features make it simple for organizations to customize calculations based on their data and needs.

Credit risk assessment

Assessing credit risk is a major component of CECL. Our software uses advanced PD/LGD models to let you reuse and adjust historical loss methodologies (e.g. vintage analysis, loss rate, or net flow rate) as your accounting standard. You can assess credit risk on both an individual and collective basis.

 

CECL calculation and processing

Our compliant methodologies include a fully advanced PD/LGD model and discounted cash flow. You can make these calculations at the contract level and incorporate expert judgment into the calculations to achieve the level of accuracy that’s required for calculations and analysis.

Scalable, flexible and auditable framework

Advance from a tactical solution to a strategic one that meets all CECL compliance guidelines with our scalable solution. Our flexible Expected Credit Loss calculators can work with multiple scenarios, including macroeconomic scenarios and expert judgment.

TECHNOLOGIES

Laravel

Vue.JS

MySQL

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