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Future-Proof Your Risk Management & Compliance with Graph Technology

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In the aftermath of the Lehman crisis of 2008, financial services firms face a number of new regulations and risk management challenges.

One key regulation is the Fundamental Review of the Trading Book (FRTB), which is part of the upcoming Basel IV set of reforms. The new regulations require banks to reserve sufficient capital to maintain solvency through market downturns and avoid the need for government bailouts.

However, in this challenge lies an opportunity: Banks are using FRTB mandates in order to build a firm foundation for future risk management and compliance applications that lower development and staffing expenses, optimize reserve ratios, maximize available capital and drive investment profits.

Publié dans : Technologie
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Future-Proof Your Risk Management & Compliance with Graph Technology

  1. 1. Future-Proof Your Risk Management & Compliance with Graph Technology Nav Mathur July 2018
  2. 2. • Regulatory Maelstrom • BCBS 239 and Credit Risk Management • FRTB Compliance Overview • Need for a Modern Risk Management Platform • Demo • How Graphs Uniquely Address Risk & Compliance • Industry Outlook & Summary Agenda Nav Mathur Sr. Director – Global Solutions @ Neo4j Nav@Neo4j.com @nav_mathur | in/navmathur 2
  3. 3. Today’s Financial Services Regulations Are Dizzying Basel Accords I-IV Dodd Frank EMIR FATCA Financial Stability Council Risk Reporting and Disclosures Capital Treatment of Securitizations Living Wills Alpha Regulation FFIEC Volcker Rule Collins Amendment 23A Affiliate Transactions SR 08-8Federal Register Counterparty Credit Risk Off-Balance Sheet Transactions Foreign Investors Tax Treaty Mortgage Servicing and Lending Payments, Custody, Clearing and Settlement Capital Ratios and Constitution Capital Planning and Stress Testing Derivative Training Rules Client On-Boarding Exchange Trading MiFID II Hedge Fund Regulation SWAPs Push-Out Durbin LEI Orderly Liquidation Say on Pay Liquidity Provisions Leverage Ratio Concentrations and Limits Executive and Director Activities Truth in Lending BCBS 239
  4. 4. Risk Data Aggregation Governance and Infrastructure Risk Reporting Supervisory Governance Data Architecture and IT Infrastructure Review Remedial Actions and Supervisory Measures Home / Host Cooperation Accuracy and Integrity Completeness Timeliness Adaptability Accuracy Comprehensiveness Clarity and Usefulness Frequency Distribution BCBS REGULATORY PRINCIPLES DATA LINEAGE REQUIRED Risk Modeling Requires Data Lineage
  5. 5. Credit Risk Management •Connected Nature of companies •How market events and news cascades through connections •Impacts Bank Loans to Companies not directly connected to market events https://neo4j.com/use-cases/privacy-risk-compliance/
  6. 6. Group of traders execute their own strategies and have a dedicated risk management function Trading Book Regularly traded assets Calculate fair market value daily Higher reserve requirements Banking Book Assets to be held to maturity Not required to be valued daily Lower reserve requirements Trading Books Carry the Bulk of Investment Risk
  7. 7. Internal Risk Models Drive Lower Capital Reserves Lower capital reserves drive higher bank revenues and profits
  8. 8. Tracing Risk Lineage FRTB requires banks to calculate investment risk at the trading-desk level… …requiring them to evaluate the interrelatedness of every investment on their books. Graph technology is the right solution
  9. 9. FRTB: Evaluating Risk Models Against the Current Market After risk models back 10 years, banks must test them using real data at 24 points over the last year
  10. 10. Baskets DerivativesTrading Desks Prices TRACE RISK DATA LINEAGE AGGREGATE RISK Risk Management Traverses the Graph Both Ways After tracing data lineage back to authoritative sources, banks must aggregate risks back up to the trading desk to calculate capital reserve requirements
  11. 11. Internal Risk Models Span Investment Data Silos Graph technology unites discrete silos into a unified data source that enables banks to trace compliance data lineage
  12. 12. Need for a Modern Risk Management Platform Benefits:
  13. 13. Demo Nav Mathur Sr. Director – Global Solutions @ Neo4j Nav@Neo4j.com @nav_mathur | in/navmathur 13 Harland Duman Solutions Engineer @ Neo4j Harland.Duman@Neo4j.com
  14. 14. How Graph Technology Uniquely Addresses Recent Regulations 0000 BCBS 239 CCAR FRTB MiFID II CAT NMS GDPR BSA AML Objective Aggregation and Reporting Capital Adequacy Capital Reserve Requirements Markets and Trading Trade Monitoring European Client Privacy Fraud Detection Deadline Active Active Jan 2022 Active Active May 2018 Active Data Lineage ● ● ● ● ● ● Real-Time Risk Aggregation ● ● ● ● ● Temporal Consistency ● ● ● ● ● ● ● Risk Analytics ● ● ● ● ● ● Model Visualization ● ● ● ● ● Compliance Reporting ● ● ● ● ● ● ● Governance ● ● ● ● ● ● ●
  15. 15. • Banks should focus on implementing FRTB in a smart way, including the broader strategic goal of upgrading the trading-risk infrastructure from front to back. • Banks have been given a golden opportunity to get their trading houses in order and to set the stage for all the advanced technologies that are so thoroughly remaking the industry. • Compliance with FRTB is not the only reason to overhaul infrastructure, but it is a powerful one. A coherent front-to- back technical architecture and aligned organizational setup eliminate many sources of discrepancy among the business, risk, and finance views. • To produce reliable, fast, high-quality measurements (as specified in BCBS239), an institution needs reliable, high- quality data processed by the cogs of an efficient operating model. Only then can the bank truly know its complete risk profile and profitability, and execute its strategy with assurance. Underlying both arguments—compliance and business—are the considerable benefits of consistency and efficiency A select few of these leaders are also developing proofs of concept for applications of advanced analytics and artificial intelligence. These provide ways to capture a higher share of the potential efficiency gains, in a shorter time frame and sometimes at a lower cost. Leading to: •Better transparency •Enhanced risk management •Greater operational resilience McKinsey & Other Studies Agree! Credit: McKinsey & Co. – FRTB Reloaded Paper Basel Study found 70% banks cannot adequately explain the P&L and its drivers.
  16. 16. Neo4j Nails Financial Services Risk Management & Compliance • Manage highly interrelated, connected data • Trace the lineage of risk factors • Merge trading, fund management, pricing, and other silos into a unified dataset • Visualize and modify risk model graphs • Modify models to keep pace with changing market conditions, organizational changes and investment strategies https://neo4j.com/use-cases/privacy-risk-compliance/
  17. 17. THANK YOU Future-Proof Your Risk Management & Compliance with Graph Technology

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