SAS organized a Digital Transformation of Stress Testing & IFRS9 day to show the role of AI in facing Business & Regulatory challenges

SAS, the leading company in analytics and predictive visualization, has organized the Stress Testing & IFRS9: How to face regulatory and Business Challenges day. During the event several international best practices on how to address regulatory changes where presented.

Iván López, Director Global IFRS & Offering Services - Deloitte, during his presentation (The need to adapt to new regulatory evolution and banking trends) emphasized the shift in the regulatory requirements after the financial crisis. The coordination between the diferent regulatory bodies have accelerated and the common denominator is the focus more on the management and decisioning rather than the specific figures. E.g. the provisions are not purely an accounting result, but the reflection of the management processes of the company.

The partnership between Deloitte and SAS provides integrated solutions that helps the banks to deal with the new challenges imposed by the regulators to ensure improved governance, auditability and traceability of all the processes.

Anselmo Marmonti, Senior Director Risk & Finance Practice - SAS SEMEA, explained how financial institutions should digitally transform their business and regulatory processes to strongly increase the efficiency and proactively support the business strategy. Marmonti shared how several Banks around the world are managing with SAS their transformation processes, applying the digital approach to multiple concrete use cases, like: Credit process, Risk & Business ML models, Internal Validation & Model Risk Management, IFRS9, Stress Testing & Integrated balance sheet forecasting. All these real experiences showed how to achieve the operational efficiency of its businesses and reduce the Total Cost of Ownership, while complying with the regulations.

SAS approach is based on transforming the fragmented programs and engines into an integrated and strategic Risk & Finance Framework for all scenario-based simulations, like RWA, ECL, Integrated Balance Sheet Forecasting, ICAAP, Capital Planning and Stress Testing. Among the many benefits of this approach are full control of business users performing ad-hoc simulations, High Performance elaborations to reduce the execution time from hours to minutes and full accessibility to results and algorithms to guarantee auditability and easy configuration of new analysis.

During his presentation, The IFRS9 challenge: between regulatory compliance and operational efficiency, Manuele Arturo Nicolini, Senior quantitative analyst - Banca Mediolanum, described how the SAS platform helped the bank to accomplish the IFRS9 project. A project that impacted all the areas of the organization: COO, CFO, CLO and CRO. The risk function had to develop many new models and requires new capabilities to run simulations and assess the impacts on the business. Now, the risk users can explore the aggregated results and drill down to the details of every single exposure to analyze and explain the results.

The project was successfully completed last year and it expanded the usage of SAS, already in place for Internal Rating Models and Regulatory Capital Calculation. The Bank now plans to evolve it including the exploration of innovative solutions involving artificial intelligence and machine learning to improve the model validation processes and model governance. 

Andrea Neri, Head of Risk and Compliance ICT Department - Banca Credem, added during his speech, Form AIRB Certification to IFRS 9 through Stress Testing and beyond, provided an IT oriented view on same business and regulatory challenges. He pointed out that the evolution of the regulatory requirements during the last 5 years are forcing the banks to provide an integrated view between risk, regulatory reporting and balance sheet figures. The bank created an ICT department focuses on risk and regulatory compliance that has been key to set-up a winning architecture: data should be easily accessible, software lifecycle should be more agile, testing should become highly repeatable in shorter time and ICT platform performances must be always high.

Implementing the SAS platform, beyond the business and regulatory goals, some additional beneficial effects were the high integration between IFRS9 framework and supervisory and reporting solution that made possible to lower the costs of maintenance, reducing the points of failure. There are also synergies in terms of data and ICT process that lowered the impact on operational systems and made possible to increase the data quality. 

Andrea remarked the fact that the Risk department can now freely prototype making easier to express business requirements for ICT solutions and the high-performance execution enable them to develop complex benchmark testing and simulations. This is possible thanks to the usage of the SAS Risk & Finance framework also for the coverage of the Internal Rating Models, the Regulatory Capital and the Fair Value Calculations.

The conference was closed with a round table, moderated by Alida Popescu, Risk & Finance Solution Manager - SAS SEMEA, in which Iván López, Manuele Nicolini, Andrea Neri and Carlos Cerdà (Risk & Finance Solution Manager - SAS Iberia) have participated and who have concluded that current priorities for the banking sector are Model laboratory to develop risk & business models including advanced technics (i.e. text analytics and Machine Learning) and quickly deploy them in a robust framework to guarantee the validation; Simualtion Environment to allow risk users to configure and run scenario-based analysis and support the business decisions; modernize the internal validation environment to support more frequent and granular analysis, including Model Risk assessment of Machine Learning Models. More granular calculations, more frequent executions, more flexible reporting, are requirements to facilitate simulation of the impact of the business decisions in areas like balance sheet forecasting, planning or scenario based analysis.