IFRS 9 product of the year: AxiomSL

Asia Risk Technology Awards 2020

To effectively implement International Financial Accounting Standard 9 (IFRS 9), which addresses how to account for financial instruments, banks need to rely on their data and models to provision their expected credit losses (ECL) and inform their risk decision-making.

IFRS 9 can cause provisioning assessments to be higher than previously, as it includes multiple instances under which ECL must be assessed for lifetime or under volatile forward-looking scenarios. However, banks face an operational challenge to source and integrate their disparate data and models they need, particularly since the risk and finance functions are historically siloed.

Therefore, it is critical for an IFRS 9 solution to enable these functional areas to share risk data and models so the bank can reconcile the chief financial officer’s assets and liabilities perspective with the chief risk officer’s products and portfolios perspective.

Fragmented data architectures are further complicated by the array of credit-risk models a bank uses to generate the probability of default (PD) and loss given default (LGD) curves. These outputs are typically generated using black-box modelling systems, which are then fed into a calculation system to calculate ECL and perform scenario analysis.

AxiomSL can solve this challenge and other potential points of failure by enabling the financial institution to gather all its dispersed data, credit-risk mitigation (CRM), and credit artefacts into a single credit ecosystem. AxiomSL’s IFRS 9 solution, which runs on its ControllerView single platform environment, can ingest original source data and house credit risk models, portfolio exposures, credit ratings, impairment rules and more.

With all the calculations in AxiomSL’s ecosystem, clients can use built-in workflow capabilities to pre-process the impairment calculations on demand. AxiomSL’s step-by-step data processing provides intermediate results after each step, allowing analysts to find results more quickly.

This, in turn, leaves room for financial institutions to iterate and fine-tune the end-to-end process and manage profit-and-loss volatility.

RegCloud provides the power of scalability on demand. This is really important for IFRS 9 because processing huge volumes of data through numerous models and data processing for multiple scenarios requires a lot of processing power

Saumyadeep Datta, AxiomSL

Since the fourth quarter of 2019, financial institutions have been able to deploy the IFRS 9 solution through AxiomSL’s secure RegCloud offering. RegCloud enables each client with a virtual private cloud managed by a separate cloud operations team.

Saumyadeep Datta, Asia-Pacific (Apac) product manager for liquidity risk at AxiomSL, says this is especially relevant as more banks in the Apac region become more open to cloud adoption, as it can lower their infrastructure and operating costs.

“Moreover, RegCloud provides the power of scalability on demand. This is really important for IFRS 9 because processing huge volumes of data through numerous models and data processing for multiple scenarios requires a lot of processing power. Hence, RegCloud becomes a preferred hosting mechanism,” he says.

RegCloud is compliant with ISO and SOC standards, and AxiomSL has several clients using this solution for MAS 610 and Global Shareholding Disclosures in the Apac region. It is currently in the process of certifying other solutions in the cloud.

AxiomSL is also making its solution database-agnostic. Datta says the company is certifying its solution to be compliant with Postgres, Redshift and other relational database management systems, and decoupling any hard dependency on legacy and expensive databases. “This helps banks reduce their overall cost of compliance,” he says.

Looking ahead, AxiomSL is working with big-data technologies in terms of cashflows using Apache Spark, an open-source distributed general-purpose cluster-computing framework. While this will initially benefit its liquidity customer base, the same technologies can also be used to benefit its IFRS 9 customer base.

“What we are trying to do with cashflows is just one part. We’re scaling this technology [for] all our products in ControllerView. We have actually started the process, and, at the moment, we are scaling it [for] capital and liquidity [products], and IFRS 9 is the next step,” says Datta.

The benefit of doing that is that the solution’s performance will be much faster than the current processing time. For example, Datta says, it used to take AxiomSL three-and-a-half hours to process around 3 million cashflows. Now, the same can be done in 30 minutes.

“So, this is the kind of performance benefit we are going to get in terms of IFRS 9, as well. What’s the value of faster processing for a bank? They are able to simulate a lot of scenarios which can run in parallel, and they will get the results very quickly,” he says.

It is also exploring with clients using open source to run their risk models. “During this Covid situation, banks are realising a lot of their ECL risk models are no longer valid, and trying to integrate new models is a painful and costly exercise,” he adds.

AxiomSL can execute R and Python code. This allows clients to move away from large, clunky and closed legacy systems to run their models on, into a more open-source environment, yet maintain the data integrity and control through the AxiomSL platform.

“We have one client who has migrated more than 70 IFRS 9 risk models onto our IFRS 9 platform, reducing time to market in a very cost-effective manner,” says Datta.