ASSESS. BENCHMARK.
IMPROVE.

OUR SERVICES

The financial crisis of 2008-2009 revealed significant weaknesses in enterprise risk management policies and processes in financial institutions. Increasing regulation on model quality, capital adequacy and risk culture, as well as demands by stakeholders to know about the models, processes, and policies driving their business, is pushing financial institutions to think strategically and invest in internal and external review systems and processes.

An external peer review complements internal ones as it provides an independent and external assurance that a risk policy, model or process is reasonable.

Drawing upon an extensive risk management and modeling expertise with financial institutions of different size, we help risk management teams in our clients independently evaluate qualitative and quantitative aspects of their enterprise risk management framework against best practices in order to identify areas for improvement.

Our services include Model Validation, Benchmarking, and Enterprise Risk Management Review. The output from each of these services is a set of actionable recommendations.

MODEL VALIDATION

Based on a multi-tiered methodology we provide a solution for qualitative and quantitative validation of risk parameters for IFRS9/CECL, regulatory and economic capital, stress testing, liquidity risk, credit scoring models and internal risk ratings for retail and wholesale portfolios.

For the quantitative part of the validation, our methodology selects from an array of techniques the ones that are appropriate for each risk parameter and portfolio under study and makes recommendations using a traffic lights approach. The quantitative validation techniques include ones specifically developed for low default portfolios, e.g. corporate and sovereign ones.

The output from the model validation solution enables managers too early detect model misbehavior, identify possible causes of such misbehavior and take actions accordingly. The solution also allows a financial institution to satisfy corporate governance requirements for model risk.

Read more about our methodology for retail credit scoring models in:

Empirical Validation of Retail Credit-Scoring Models

BENCHMARKING

The complexity, data limitations, and uncertainties in models and systems make imperative the need for benchmarking in order to assess and control model risk.

Our Portfolio Forecasting and Stress Testing tools for Retail and Wholesale portfolios allow managers benchmark internal parameters for Basel III/CCAR regulatory capital and CECL/IFRS9 loss allowance estimation. This is done by using “benchmark” portfolios from consumer and commercial bureaus.

Working together with the client, we construct “benchmark”, peer-group portfolios. The tools are applied to the resulting benchmark datasets to estimate benchmark parameters and forecast expected and unexpected losses under regulatory and company-run scenarios.

Such benchmarking has also been used to evaluate the risk appetite of the bank compared to the competition and identify opportunities for existing or new products.

RISK MANAGEMENT REVIEW

Our ERM reviews consist of gap analysis, benchmarking against best practices and recommendations. They include reviews of the Internal Capital Adequacy Assessment Process (ICAAP) under Basel III/CCAR, risk culture, economic capital methodology, and model risk framework.

  • Read more from our case study on ICAAP review.
  • Read more from our case study on Risk Culture review.