interdependency and SA-CCR's far-reaching impact mean that though it is
designed to reduce complexity, the reality on the ground may be different. The
experience of our clients who have undergone SA-CCR implementations shows the
new approach requires substantially more data points, such as trade directions
and hedging set definitions, and more complicated calculations than CEM.
Sourcing, calculating and transforming the necessary data input for SA-CCR
can therefore prove a significant challenge for existing processes and
infrastructure, particularly where relevant information is spread among
disparate legacy systems. SA-CCR is also likely to require closer personal and
technological coordination between departments and functions like finance and
When planning their SA-CCR projects, banks should therefore
consider solutions that support closer connections among finance, risk and
regulatory reporting, forging processes and structures capable of keeping pace
with an ever-changing commercial and supervisory environment. The best
solutions will include a dedicated finance, risk and reporting data warehouse
that pools risk, finance and other key functions; integrate old systems with
new ones; and pay particular attention to elements like data lineage.
Recognizing business realities
Banks also need to consider
SA-CCR's potential business impacts. Some are likely to be positive, such as a
more accurate picture of risk overall and lower exposures associated with
centrally cleared transactions. Others may be problematic, including reduced
benefits from netting and higher counterparty risk exposure in unidirectional
There are clear arguments for beginning to evaluate and
address those impacts sooner rather than later. Adopting or commencing trial
runs of SA-CCR now will enable banks to identify and analyze effects on
exposure and capital adequacy scenarios, and adjust derivatives policy and
processes to mitigate these effects if needed. Early adoption will also build
understanding of the data and technology requirements SA-CCR involves, and to
establish where existing systems and processes may be adequate or where
additional data points or integrated risk calculators will be needed.
Many institutions will adopt external solutions to bolt on the additional
capabilities SA-CCR demands. But this can present an additional source of
complexity, if a solution is a struggle to integrate with existing systems or
not sufficiently integrated itself. Banks should ensure a SA-CCR solution
covers all required parameters; offers the transparency needed to source and
track data throughout its lifecycle, to support more granular calculations;
and, bearing in mind SA-CCR's interdependency with other aspects of Basel
III/CRD V, is part of a broader toolkit that extends to all aspects of this
regulatory architecture. Putting the right solutions in place early gives
banks the opportunity to go beyond simply keeping up with requirements to
grasping the business implications of the new data points SA-CCR will create.
Factored into business analytics, these calculations can help institutions
reach new levels of insight into trends in risk and on the balance sheet.
So, when to (re)act?
When it comes to SA-CCR and Basel
III/CRD V as a whole, the banks that act quickest may not necessarily win the
race. But they will certainly have a running start. Firms should also take
into account that a "one-problem-at-a-time" approach that addresses SA-CCR
projects in isolation rather than in the context of broader regulations such
as Basel III/CRD V, will likely result in silos and data gaps - as well as
possible duplication, with multiple departments producing the same
information in different ways and with different results. This is not only a
possible waste of time and resources, but may create inconsistencies that make
the data appear untrustworthy to regulators and executives within the firm
that are counting on it to support strategic decisions.
Kobe Demuynck, Regulatory Reporting Consultant