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FusionBanking Loan IQ Regulatory Update:
EIR, IFRS 9, FATCA and more
Michel DORVAL
Product Management Strategy – Regulation
Lorenzo CERUTTI
Systems Advisory Group
Christine SCAFFIDI
Product Management – Lending
Misys Topic of the Month
Misys Connect
Strategic advantage
Regulatory update for Lending - Overview
FusionRisk for Loan IQ – EIR and IFRS 9
Other Regulatory requirements – BCBS 239, Anacredit,
FATCA/CRS
Regulatory Working Group
Question and Answers
–
Agenda
3 © Misys 2016 10 February, 2016
A cross-functional approach to position Misys on regulatory topics
Monitor and
understand new
regulations
Synthesis and
prioritisation
of top regulations
Thought
leadership &
positioning
Product
roadmap &
development
External
Collateral,
GTM planning
• Capture new and
changed
regulations as
they are
proposed
• Identify high-level
impact through
discussions with
PMs
• Identify and
prioritise
regulatory trends
• Drill down on
most important
regulations and
agree strategic
positioning
• Define “Misys
position”
• Deliver internal
training
• Engage with
Partners
• Launch external
positioning
campaign
• Define and
deliver required
functionality
• Follow standard
ARR and PLM
process including
GTM checklist /
enablement
• Build demos
• Develop
collateral
• Plan campaigns /
launches as
required
5 © Misys 2016 10 February, 2016
Prioritization of top regulations indicating impact on lending business
Full Name Compliance
Date
Region/
country
Business Impact on customers
IFRS 9 2018 Global Accounting
• More alignment with risk management (hedge accounting and expected loss impairment
model)
• Potential changes to fair value versus amortised cost calculation
AnaCredit 2018 Europe Lending • Integration of the AnaCredit data requirements
• Expansion of the reporting content and more frequent interval of reporting
FATCA 2015
Global
(linked to
US)
Financial
Crime
• Capture of Customer and counterparty (individuals and legal entities) classification and
identification of US accounts
CRS (or GATCA) 2018 Global Financial
Crime
• Capture of the customer information
• Due diligence and identification
• Documentation and reporting
BCBS 239 2016 Global Group level • High level principles concerning banks’ IT and infrastructure capabilities, upstream and
risk systems, risk data and reporting.
MIFID II/Dodd
Frank 2017 Europe
Market
Structure
• Major extensions to pre and post trade transparency and transaction reporting
• Moves trading of standardised derivatives on to exchanges or other organised trading
venues
EMIR/Dodd Frank 2017 Europe
and US
OTC
derivatives
• Open items that needs to be covered from EMIR/Dodd Frank like Connectivity to CCP or
Clearing
IFRS 9 – Key requirements
6 © Misys 2016 10 February, 2016
• Classification and Measurement of Financial Assets and Liabilities
• Includes Expected Losses
• Replaces IAS 39
• Effective 1st Jan 2018, as per IFRS Foundation decision
• But national endorsement required.
• The US will not adopt IFRS 9 as such, but US GAAP tend to converge
with IFRS
• New Misys architecture allows a fair level of localisation
IFRS 9 – Key requirements
7 © Misys 2016 10 February, 2016
Classification
Asset chars
Business model
Determines measurement
type
Measurement
Amortised Cost (EIR)
Fair Value
(NPV)
Impairment
Expected Loss
Forward looking
Hedging
Optional (IAS 39 rules can continue
to be applied).
Rules being still finalised
Consistency
IFRS 9 – Misys Strategy
Equation IAS 39
LoanIQ IAS 39
Essence IAS 39
Midas
Non-Misys
Banking system FusionRisk
IAS 39
FusionBanking
Equation
FusionBanking
Lending
Today Yesterday
© Misys 2014 24 November, 2015 8
FusionBanking
Essence
FusionBanking
Midas
IAS39 / IFRS 9
Non-Misys
Banking system
Midas IAS 39
FusionRisk
Risk Management
Limits
Balance Sheet Mgmt
Other Regulations
Misys FusionRisk – A pro-active risk management platform
24 November, 20415
©
Misys FusionRisk: (some) References out of 330+ Customers…
10 10 February, 2016 © Misys 2016
Why replace the EIR module of Loan IQ?
11 © Misys 2016 10 February, 2016
IFRS 9 requires convergence and consistency across various requirements, including EIR
• Critical to Misys > guaranteed commitment
Centralised development across Misys products
Access to all other FusionRisk features, also beyond Regulatory space
FusionRisk is a modern, specialised platform
• FusionFabric Connect - Middleware
• FusionRisk Insight – Ultra-fast data aggregation and business intelligence dashboard using in-memory database
Easy to integrate:
Roadmap for Loan IQ
12 © Misys 2016 10 February, 2016
FusionRisk
IFRS 9 Impairment added to FusionRisk
Loan IQ Version 7.3.1
Retrofit of FR integration
Loan IQ Version 7.4.1
EIR via FusionRisk
Support of
existing Loan
IQ EIR module
will continue
13 10 February, 2016
IFRS 9 Classification
© Misys 2016
FusionRisk classifies assets bases
on standard attributes:
Business Model
SPPI Condition
Held for Trading
Etc...
The rules to assign those attributes
can be setup:
Inside FusionRisk, based on
contract characteristics
Outside FusionRisk, importing the
attributes as part of the contract
details
IFRS 9 Classification - Example of data that could be sent from CME
Pre-defined covenants
available in list.
Selected covenants
are added to the deal
Standard covenant
wording is populated
and access controlled 10 February, 2016 © Misys 2016 14
15 © Misys 2016 10 February, 2016
EIR with FusionRisk – From Loan IQ v7.3.1.x
LoanIQ
FusionFabric
Connect
CDM Loan /
Facility
Export
1 2
Mapping
to
CDM
FusionRisk
Accounting
Module
3
Data upload
in
FusionRisk
Cashflow
Engine
4
Accounting
Computations
(EIR…), event
management
FusionRisk Insight Dashboard
5 Display detailed
Results
Accounting
computations
are returned to
LoanIQ
6
Common Data Model
Provisions must be made:
- at contract initiation (12 months expected losses)
- at end of financial year (12 months expected losses)
- upon significant credit deterioration (lifetime expected losses)
EAD must be consistent with Asset measurement (AC, FV)
PD and LGD to be determined with custom rules taking into account
future contractual cashflows and bank expectations over customer and
market evolution: term structures for PD and LGD, transition matrix,
sensitivity to macro-economic factors, etc...
IFRS 9 Impairment – The requirement
16 © Misys 2016 10 February, 2016
From Incurred Loss Approach to Expected Loss Approach
Base is the same (EAD x PD x LGD) - but: IF
RS
9
17 10 February, 2016
IFRS 9 Impairment – FusionRisk process
© Misys 2016
Expected Loss
Engine
Output
Credit Risk
Framework
FusionRisk module – but
could use external application
instead
Assign the bucket according
to customisable rules
Assign the appropriate
PD/LGD/EAD inputs according
to customisable rules
Define the scenarios
• Market/macroeconomic data
• PD/LGD/transition matrix
Retrieve the credit risk inputs
• Bucket
• PD/LGD/EAD parameters
Compute Expected Losses
• 12 months
• Lifetime
Dashboard (FusionRisk
Insight)
On-demand for pre-deal
origination
Pre-defined regulatory
reports
Extraction sent to the
Loan IQ sub ledger - or
other GL system
IFRS 9 Impairment – Leveraging the existing EIR solution
Amortised
Cost
Cash-
flows
engine
Scenarios
• Economic
o Rate curves
o Market and macro-
economic indices
• Behavioral
o Prepayment
o Future drawdowns
• Credit risk
o PD/LGD
o Transition matrix
• Imported
• Computed
o Based on financial
characteritics
o Based on models
• EIR computation
Expected
Loss
• 12M EL
• Lifetime EL
New
Development
19 10 February, 2016
Expected Loss Engine – Credit Risk Scenario
Multi-scenarios Expected Loss computation (e.g.: Base, Downturn, etc.)
Credit Risk Scenario « Base »
Segment « Retail »
PD
LGD
Surface
Transition
matrix
Index
Surface
Index
Segment
« Corporate »
PD
LGD
Surface
Transition
matrix
Index
Surface
Index
Segment « SME »
PD
LGD
Surface
Transition
matrix
Index
Surface
Index
© Misys 2016
20 10 February, 2016
Expected Loss Engine – Credit Risk Scenario
The curve defines a term structure The index associates a value to a date. The value
can be imported or defined by a function.
PD and LGD can be defined as curve or index
The user can define any macro-economic factors in the
economic scenario.
0.0000%
10.0000%
20.0000%
30.0000%
40.0000%
50.0000%
60.0000%
70.0000%
80.0000%
90.0000%
100.0000%
0d 365d 730d 1095d 1460d 1825d 2190d
Rating A 31-05-2015
0.000%
10.000%
20.000%
30.000%
40.000%
50.000%
60.000%
70.000%
80.000%
90.000%
100.000%
0d 365d 730d 1095d 1460d 1825d 2190d
RatingA 30-06-2015
0.0000%
10.0000%
20.0000%
30.0000%
40.0000%
50.0000%
60.0000%
70.0000%
80.0000%
90.0000%
100.0000%
0d 365d 730d 1095d 1460d 1825d
RatingA 31-07-2015
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
1985
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2013
2014
2015
2016
2017
2018
2019
2020
GrowthRate
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
1985
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Inflation rate
© Misys 2016
21 10 February, 2016
Expected Loss Engine – Credit Risk Scenario
« Base Matrix »
31/07/2015
Time horizon – 12 months
The transition matrix is applied to the curve/index defined for the PD
Segment « Retail »
RatingA RatingB RatingC RatingD Default
RatingA 90% 8% 1% 0.30% 0.70%
RatingB 1% 91% 7.5% 0.15% 0.35%
RatingC 0.10% 2.90% 91% 5.50% 0.50%
RatingD 0.02% 0.53% 7.45% 85% 7%
Default 0% 0% 0% 0% 100%
« Downturn Matrix »
31/07/2015
Time horizon – 12 months RatingA RatingB RatingC RatingD Default
RatingA 80% 12% 5% 1% 2%
RatingB 0.5% 80% 13.5% 3% 3%
RatingC 0% 1% 82% 10% 7%
RatingD 0% 0% 3% 82% 15%
Default 0% 0% 0% 0% 100%
Conditions can be defined to link the TM to indexes defined in the economic scenario IF GDPGrowth(t) < 0 THEN TransitionMatrix = “Downturn Matrix” ELSE TransitionMatrix = “Base Matrix”
© Misys 2016
22 10 February, 2016
Output - Accounting
© Misys 2016
Impairment Stage 1: Initial recognition, and at each balance sheet date
Expected losses over the next 12 months
Impairment Stage 2: Upon credit deterioration
Expected losses over the transaction lifetime
Impairment Stage 3: Charge Off
23 10 February, 2016
Output – FusionRisk Insight Dashboard
© Misys 2016
• No SQL Storage
• Fast in-memory
aggegation
• Customisable and
interdependent widgets
• Will be used to drill
down on FusionRisk
results – e.g. Amortised
Cost, Cashflows, etc.
Output – Pre-defined regulatory reports
24 © Misys 2016 10 February, 2016
Load the Excel template in
FusionRisk
Run the computations and export
the Excel file
Output – On-demand calculation – e.g. for Pricing
25 © Misys 2016 10 February, 2016
Lending system (CME, Loan IQ, Other)
API
Contract
characteristics
Loss Allowance,
FTP, RWA,…
FusionRisk
BCBS 239: Misys response versus data management, processes, risk
measures, reporting and governance
• Data architecture & IT infrastructure respecting BCBS239 principles
• Bi-directional end to end process from sources to recipient
• Generate in automated way and timely manner accurate information to
support decision making process (on-demand)
• Capture and aggregate retail, lending, trading data in common place
allowing identification of all type of exposures by business line, region,
product type and other grouping
• Facilitate supervisory review by delivery documented workflow
27 © Misys 2016 10 February, 2016
AnaCredit: the BCE requires a new dataset with detailed information on
individual bank loans. It will be applied in phases.
Level 1 Level 2 Level 3
Introduction date End of 2017 Middle of 2019
Reportable
institutions
Banks (domestic) Other finance companies
Foreign branches
Reporting treshold Non performing exposure: independent
of the amount
Performing exposure: from 50 K EUR
Non performing exposure: independent of the amount
Performing exposure: < 25 K EUR
Borrowers Non-finance companies
Public sector
All legal entities
Housing loans
Individual entrepreneurs
Other loans for private
households
Granularity Borrower by borrower/loan by loan Loan by loan
Loans Loans
Debt instruments without ISIN code
Off-balance sheet receivables
Derivatives
Reporting frequency Quarterly Quarterly (prudential data)/ Monthly (non prudential data)
Submission
deadline
30 working days
ITS deadlines
30 working days
ITS deadlines for model-based
data, non-EU branches
28 © Misys 2016 10 February, 2016
Loan IQ has been enhanced (ENH 3606, v7.2.7.5) to assist clients in meeting the regulatory requirements of the United States
IRS’ Foreign Account Tax Compliance Act.
The first phase of FATCA development includes functionality to
1. Identify the FATCA Classification of entities (including lenders, borrowers, agent banks)
2. Indicate whether entities are required to perform FATCA withholding.
3. Determine whether a deal or facility falls under FATCA withholding due to grandfathering status
4. Determine whether select payments fall under FATCA withholding
5. Withhold for FATCA where applicable
FATCA: Phase 1 in Loan IQ
29 © Misys 2016 10 February, 2016
CRS: The incremental impact in case of full FATCA implementation
Topic Broad area of
impact
Impact business
processes
Impact on IT systems Key considerations
New customer
on-boarding
Capture of customer
information
Low
Medium • Increase in data (additional data like
country of residence or place of birth) to
be captured
• Increase in volume of accounts to be
reviewed and documents to be verified Due diligence and
identification
Medium
Medium
Documentation
Medium
Low
Pre-existing
customers
Due diligence and
identification
High Medium • Compliance with new set of rules to
handle multiple jurisdictions
• Increase in volume of accounts to be
reviewed and documents to be verified Documentation
High Low
Change in
circumstances
Review of customer
information
Medium Low • Compliance with new set of rules and
events to handle multiple jurisdictions
• Increase in volume of accounts to be
reviewed and documents to be verified
Due diligence and
documentation
Medium
Medium
Reporting Reporting Medium Medium •Increase in number of fields to indicate
jurisdiction, other data
• Mission
– To provide a forum for clients to discuss Regulations as they impact the business lines run on
FusionBanking Loan IQ and gain consensus on any new requirements. Primary focus has been on
FATCA.
• Structure
– Meets monthly or more frequently as needed
– Led by Amanda Kwok, Misys Senior BA, [email protected] and Christine Scaffidi,
• Achievements
– Published FusionBanking Loan IQ FATCA Position Paper
– Collaborated on FATCA Phase I enhancement, delivered in v7.2.7.8 in April 2014
• Future focus
– Current discussion focuses on implementing Ph. 1 and interim workarounds
– Future discussions to encompass additional FATCA and tax withholding requirements
– Additional topics: VAT, IFRS9 and the U.S. Service Members’ Civil Relief Act
Regulatory & Tax Working Group
30 © Misys 2016 10 February, 2016
31 © Misys 2016 10 February, 2016
Next steps
In one minute
• Questions and Answers
Today
• Presentation PDF
• Link to Webex recording
Survey
• State bank’s interest in various features
• Rate this session
• Suggest topics for future session
Anytime
32 © Misys 2016 10 February, 2016
In one minute > Questions and Answers
In one hour > Survey
Anytime: just email me ([email protected])
misys.com Please consider the environment before printing this PowerPoint.
@MisysFS
Misys @ LinkedIn
MisysVideoChannel
Lorenzo Cerutti / Michel Dorval / Christine Scaffidi
Christine [email protected]
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