Enhancement of Internal Rating Based Framework

SUMMARY

The client, a major universal bank featuring a significant wealth management activity, was in the process of enhancing its IRB framework (Internal Ratings Based) following Basel IV requirements and feedback from the European Central Bank (ECB). This program has been launched to repair internal models used to calculate own funds requirements for credit risk under the Internal Ratings Based (IRB) approach.

The main objective of Avantage Reply in cooperation with the Group’s ongoing efforts was to lead, coordinate and support one of the program’s workstreams on Organisation & Governance, Rating Systems, Performance & Analytics and Data & Architecture IT.

CUSTOMER GOALS

The ultimate objective of this project was to support the Bank with the successful submission of the Financial Institution response to the ECB. More specifically, this support covered two key areas:

• Project management activities which involved providing experienced Project Managers to ensure the operational management of the program and the coordination between the various workstreams of the program.
• IRB Repair expertise by supporting the Bank with technical know-how on the remediation plan follow-up. This plan also has to answer to findings identified during a TRIM review of the Bank portfolio.

CHALLENGES

Avantage Reply’s team was well prepared for the engagement and received all the necessary support from the client. However, several challenges became evident over time such as:

• Quality and granularity of the data available, especially on low default portfolios,
• Key stakeholders’ availability and engagement as they had to deal with multiple priorities and tasks in parallel with this program,
• Remote working during the pandemic required additional effort from stakeholders to ensure a smooth development of the tasks.

SOLUTION

Avantage Reply deployed a strong overall PMO governance and implemented guidance aiming at providing:

• Support with the set-up of the project,
• Guarantee the successful delivery of the planned deadlines and milestones,
• Strong communication across the various program’s workstreams,
• An agile framework.

Our strong expertise on IRB repair-related questions and projects also allowed Avantage Reply to provide technical support and market insights to the streams Rating Systems, Performance & Analytics, Data & IT Architecture ensuring support with the local models enhancement and supervisory feedback on remediation.