Amsterdam-based asset manager Kempen Capital Management has implemented Omgeo’s ProtoColl to automate collateral management for OTC derivatives and reduce counterparty and operational risk.
Accounting standards changes, Basel III and the development of industry best practices for risk management and valuations have caused a “hockey stick moment” for the development of credit valuation adjustment (CVA). Dan Travers, product manager for Adaptiv and CVA solutions at SunGard, explains that CVA is a fast evolving area and the last five years have seen the concept of risk adjusted pricing adapt to meet new industry requirements around derivatives transparency, and recent interest in the space from many corners of the industry has increased dramatically.
The criteria surrounding regulatory assessments for firms that are to be considered systemically important financial institutions (SIFIs) have proved controversial over recent months (see coverage of which here), but the most recent industry furore seems to be about what happens to the data about these firms once it has been collected. This week, six industry associations wrote a letter to the Fed and the Federal Deposit Insurance Corporation (FDIC) on the subject, highlighting their concerns about what constitutes a “credible” plan for unwinding as defined in Dodd Frank and the data collection and storage aspects of the new regime.
Swift’s sanctions screening service, which is due to go live in December this year, failed to win interest from large financial services organisations when first mooted and has instead been geared towards small and medium sized banks. Brigitte De Wilde, head of anti-money laundering and sanctions for Swift, explains to A-Team Insight that a study of a sanctions utility for large organisations did not deliver a business case for larger banks that are looking for more than a standard service and want in-house flexibility to change sanction settings.
Chris Brummer, a senior fellow at the Milken Institute, reckons the current manner in which Basel III is taking shape may conflict with rules being developed by the US Financial Stability Oversight Council (FSOC) regarding the criteria by which firms are categorised as “systemically important financial institutions” (SIFIs). FSOC, the European Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (BCBS) have all recently been discussing SIFI designation guidelines (see recent coverage of which here), but Brummer highlighted the disconnect between the US and international regulation due to a lack of clarity.
By Diana Ouamar, Risk Consultant, Rule Financial
At the moment, consensus among regulators is that the strategy of using central counterparties (CCPs) will help address both firm-specific risk, such as counterparty credit risk (CCR), as well as systemic risk factors for the entire financial system. For instance, the Dodd-Frank Act passed into law in July 2010, and the European Market Infrastructure Regulation (EMIR), will mandate the clearing of OTC derivatives through CCPs by the end of 2012.
As a follow up to its 2009 Financial Risk Outlook (FRO), the UK Financial Services Authority (FSA) has published a review of the derivative risk management practices in place across the investment management industry, which highlights the buy side’s valuations and risk management practices and related shortcomings. The study, which is based on data from 12 “independent” asset managers (rather than the asset management arms of financial institutions), indicates that these firms have significantly different approaches to areas such as counterparty risk management (with varying degrees of success) and that all of the firms have independent pricing processes in place.
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