Brickendon was engaged in a Risk Weighted Assets (RWA) optimisation programme which achieved a multi- billion dollar RWA reduction, representing a quarter of the overall original RWA.
The programme addressed the underlying data quality issues which were also highlighted by the Basel committee in the finalizing Basel III Rules paper.
Client Challenges:
The client had many challenges to optimize a risk weighted asset reduction to improve the data.
These included:
Inconsistent RWA numbers resulting from poor data quality made it difficult to make
strategic decisions.
Internal model limitations due to a lack of multi jurisdictional regulatory approval, structural
rigidity, and restrictions in terms of asset-class coverage.
Differing onboarding processes negatively impacted the quality, completeness and
consistency of client reference data. Inconsistent client reference data.
Inaccurate client identifiers meant that regulatory floor values for Probability of Default (PD)
and Loss Given Default (LGD) were being used in RWA calculations.
Documentation referencing issues made it difficult to accurately match documentation.
Poor system identifiers meant that the collected collateral and Initial Margin (IM) charged
was used inaccurately.
Brickendon Solution:
Brickendon collaborated with client to provide solutions using different tool and streamline the
process. The work included:
Enable the systematic determination of AVC and CVA
Modify onboarding processes to improve integration of client and legal data fed to the
Internal Model Methodology (IMM) platform.
Identify and resolve issues impacting hierarchy management to ensure correct counterparty
risk ratings are used in the LGD and PD.
Collaborate with global teams to raise awareness of collateral and IM impact on RWA
Implement cross-programme collaboration tools to facilitate better communication and
sharing of RWA targets and results.
Introduce training programmes, redefine processes, improve Management Information (MI),
and encourage stronger governance.
Engage global front-office teams for periodic reviews of RWA numbers and encourage
discussion by providing analytics on clients to generate ideas to improve RWA.
Client Benefits:
The benefits realized by the change implemented by the Brickendon included:
Fewer manualadjustments thanks to improved AVC and CVA data
Improved netting across trades thanks to better legal and client data integration and the
accurate recognition of collateral and Initial Margin.
ImprovedLGDandPDcalculations thanks to more accurate risk ratings
Increased percentage of trades in scope for the IMM approach
Improveddatacontrols, auditability, regulatory reviews and approvals
Future-proofed deliveries from other programmes with dependencies on RWA
calculations.
Dashboard view of the impact of business actions across all sales teams to demonstrate
the RWA benefits across all asset classes.
Better business practices, aided by feedback-improved monitoring and validation
controls from the programme back to BAU.