Counterparty risk solution of the year: Moody’s Analytics

Asia Risk Awards 2022

Moody’s Analytics has scored an impressive hat-trick, winning counterparty risk solution of the year for the third year in a row. The provider of financial intelligence and analytical tools impressed the judges with how well it adapted its software to help banks comply with changing regulations in the face of the Covid-19 pandemic.

Banks are always searching for ways to juggle their regulatory commitments. Moody’s Analytics’ cloud-native SaaS offerings allow banks to outsource their regulatory burden and lower the total cost of compliance, leveraging all the benefits provided by cloud computing. The RiskAuthority software and Banking Cloud Credit Risk SaaS solutions help banks comply with current and upcoming regulatory capital requirements — including the finalised Basel III rules and the European Banking Authority’s (EBA) Capital Requirements Regulations (CRR2) — as well as national discretions for over 50 jurisdictions.

Comprehensive compliance

Banks are facing a wave of new rules, including Basel III’s highly anticipated capital requirement framework to address counterparty risk for derivatives trades: the standardised approach for counterparty credit risk (SA-CCR). Moody’s Analytics has kept abreast of this barrage of regulation to tackle governance, ensure auditability and offer validation capabilities, including smart adjustments and tools dedicated to variance and calculation results analysis. It has beefed up its RiskAuthority solution over the past year to help banks address the EBA’s new common reporting framework (COREP 3.0) and the CRR2 requirements in the European Union, including the new SA-CCR, revised leverage ratio and revised large exposures.

At Moody’s Analytics spokesperson, says: “More recently, the solution has been enhanced for the new regulatory capital requirement for NPE (non-performing exposures) securitisation under the upcoming EBA COREP 3.2, as well as supporting the finalised rules for Basel III, with the revision of credit risk and operational risk.”

The pandemic prompted the Basel Committee and banking supervisors across regions to amend regulations, including CRR2 updates and the new regulation for non-performing exposure securitisation. It accelerated the application of some regulatory rules, such as the SME supporting factor and released new Covid-19 reports. Furthermore, it delayed the global application of the final Basel III rules to January 2023, as well as the application of CRR3 to January 2025.

Many countries in Asia-Pacific including Singapore, Hong Kong, Australia and China published their own versions of Basel III; Moody’s Analytics’ solutions have already been enhanced for those local requirements.

In Europe, banks were particularly affected by growing reporting demands and the acceleration of the application of some CRR2 requirements. This meant banks needed to upgrade their systems. Moody’s Analytics accommodated these sudden changes by adapting its solutions to the updated regulatory agenda, to give its customers up-to-date solutions in a timely manner. The EBA’s new Covid-19 reports are now part of its reporting catalogue. The latest versions of the RiskAuthority and Banking Cloud Credit Risk solutions are fully compliant with CRR2 and its recent amendments due to Covid-19.

As a big-three credit rating agency, Moody’s clients benefit from vast datasets that collect information from more than 130 institutions around the world, as well as the Orbis database of over 425 million companies worldwide. These help clients fill in missing data and are used for benchmarking purposes.

A new feature includes an API version of Moody’s regulatory risk-weighted asset (RWA) and SA-CCR applications for real-time computation. These APIs are cleverly designed to integrate seamlessly with other solutions used by banks, to deliver an on-demand regulatory RWA or SA-CCR calculation for extended business decisions such as portfolio management, deal pricing and approval, or capital impact analysis.

The solution was enhanced with powerful calculation transparency capabilities that ensured high standards of governance and auditability of the calculation pipeline and reported figures

Moody’s Analytics spokesperson

The Moody’s Analytics spokesperson says: “We added several new capabilities to Banking Cloud Credit Risk in 2021. It now includes comparison tools for comparing calculation results between different configuration versions, reporting dates and regulations. This helps users quickly identify what has changed and why, from a high level to single transactions.

“The solution was enhanced with powerful calculation transparency capabilities that ensured high standards of governance and auditability of the calculation pipeline and reported figures.”

Banks need to keep a paper trail to show how they comply with regulations. To that end, the counterparty risk solution saves snapshots of the calculation pipeline and data for every calculation and reporting process, for auditing purposes.

To further boost client auditing prowess, the SaaS solution was enhanced in 2021 with technical audit, configuration validation, reconciliation, results exporting into CSV or excel, approval workflow for reports, and data mapping rules generation from the schema.

Moody’s Analytics’ SaaS technology has helped it adapt to remote and hybrid working patterns. The Moody’s analytics spokesperson explains: “In the past year, our regulatory compliance business adapted well to the new reality. We were already engaged at serving clients using SaaS technology, which facilitates remote work and sets the foundations for strong operational and business resilience at all times, but in particular when banks have to deal with difficult and uncertain circumstances such as those generated by the pandemic.”