Finance Sector – Risk & Compliance Solutions

HCL ‘s global Risk & Compliance team helps our Financial services clients to deliver technology change from the impact of risk, regulations, financial crime, cybersecurity and emerging technologies.

Since the global financial crisis in 2008 when massive losses from over-the-counter (OTC) derivatives caused Lehman brothers to default , Risk has taken on a new dimension.

The Basel rules designed to limit Banks's risk exposures has catapulted Risk managements vital role in bringing stability and order in the financial markets. Banks have subsequently been asked by Regulators to carry out improved risk measurement and de-risk their exposures to counterparties. Financial markets typically face financial risk due to changes in interest rates, foreign exchange, commodity and asset prices, with the possibility of default by individual companies and consequently the sectors they operate in.

HCL Risk & Compliance serves its banking clients worldwide to ensure compliance with risk frameworks stipulated in Basel Accords. By implementing both qualitative and quantitative approaches in financial risk management HCL protects economic value in trading and holding of financial instruments by pricing, tracking, reporting and exposing its risks.

Recognized by Everest as a Leader in its peer group In addition to risk management, HCL Risk & Compliance services offer RegTech compliance solutions. These tailor-made solutions enable its clients to tackle financial crime and be fully compliant with respective laws, regulations and codes of conduct applicable to its banking activities. Through its innovative solutions HCL supports FS clients to mitigate the risk of legal or regulatory sanctions, material financial loss, or loss in reputation.

Business Situation

Challenges and Opportunities

  • Regulatory / Industry considerations
  • Emerging technologies
  • FinTechs / RegTechs (Disruption)
  • Transformation and change management

Regulatory / Industry considerations

  • BREXIT

    The UK has left the EU with a Trade deal for Goods and Services but no deal for Financial services firms. UK Financial services firms no longer have passporting services into the EU. UK Banks, Insurers and Asset Managers will have to seek continuity of existing entry to EU Financial services market through equivalency measures granted by EBA and ESMA. Divergence in Regulatory rules between UK and EU will lead to adaptations to the new framework.

  • LIBOR Transition

    $400 trillion products in derivatives, securities and loans are in scope of transition. Banks need to transition from LIBOR to new RFRs. The financial services Industry is expecting the changes to RFR by 31st December 2021. Implementing this change requires support.

  • ISO20022

    ISO 20022 will be a replacement to SWIFT. This will be a single interoperability messaging format for all the banks in Europe & the UK which will be implemented by 2020. Currently this is applicable only to payment instructions and reporting messages exchanged bilaterally between financial institutions

  • BASEL IV

    Rules are in place for calculation of credit risk, operational risk, credit value adjustment, output floor, and leverage ratio. The overall changes will be realized in business model, system & data, risk management, impact analysis, and implementation of projects

  • GDPR

    The General Data Protection Regulation (GDPR) is a regulation in EU to protect a citizen’s personal data. This simplifies the regulation of monitoring personal data across borders and brings a single window system to manage private data.

  • MIFID2

    MiFID II are EU rules aimed at creating a single, more competitive market in financial services across all EU member states. Harmonization of rules governing the activities of financial services firms aim to promote easier cross border business, increase market transparency and improve investor protection. Its scope included financial investment, trading and participants including bankers, traders, fund managers, exchange officials, brokers, firms, institutional and retail investors.

 

Emerging technologies

  • AI

    Financial services companies are using AI in a wide range of settings. AI is used in financial crimes, loan processing, KYC, and predominantly in risk management.

  • Cloud

    It is an estimated $ 27 billion market to address concerns such as: open banking, HPC, open markets to share third party APIs. All this while, reducing operational expenses and not compromising on security

  • Digital

    Digital Technologies. The key focus areas are in work-flow automation, optical-character recognition, advanced analytics and RPA. The industry can implement digitalization by establishing a Digital Risk Office where IT, data and analytics teams could work together to monitor credit risk, market risk & operational risk and improve CCAR. Streamlined business process through GRC, helps to keep data quality at par and relevant information accessible to concerned stakeholders in a matter of click, thus smoothening business decision making

  • IAM

    An enterprise wide IAM (Identity Access Management) is being implemented to avoid data breach and security breaches. This will assure end clients about their financial services brokers confidentiality. In addition to IAM, companies are advocating private access management.

  • DLT

    Implementing blockchain in financial services industry would bring transparency in dealings, faster and automatic execution of transactions, improved security, etc. Currently this technology is extensively used in the Banking & Payments industry.

 

FinTechs / RegTechs (Disruption)

  • Fintech

    To meet Generation Z’s banking experience expectations several fintechs are focusing on innovation which has led to newer business models and superior customer experience. Most of the fintechs focus on banking, consumer lending, payments, & mortgages. This has resulted in virtual banks, building newer markets & commodities for trading.

  • Regtechs

    Regtech companies bring in uniform regulatory and compliance offerings as per the industry standards. Companies build a CDM for easy consumption of changes. They are offered as services on an on-demand model so the vendors can easily integrate them. With an integrated GRC system, businesses can cut costs on regulatory compliance by avoiding hefty fines.

 

Transformation and change management

The objectives of organisations are to implement new technologies to achieve greater efficiencies and save costs as well as to ensure regulatory compliance. To achieve these goals enterprises leverage change management & transition management programs of work. With change champions, and key metrics in place, the organization drives both business level changes as well as IT changes. Enterprises are driven by increasing their revenues and arresting leaks from risk & compliance breaches by taking ownership of their GRC system. Adaptive firms also monitor business model changes arising from emerging technologies and fintechs. By taking a forward-looking approach firms eliminate the fear of missing out. This means a successful organization manages challenges and opportunities thrown by the industry and leverages transformation and change management allowing its business to be subsequently transformed.

 

HCL Solution building blocks

 

Solution Building Blocks

Risk measurement and monitoring
Credit, Market, Liquidity, Stress testing
Finance and Regulatory reporting
Capital, MIFID 2 Transaction, AIFMD, IFRS17
Financial Crime and Surveillance
KYC, AML, Onboarding
Qualitative Risk management
Process Risk Management and Assurance, Processes Analytics
Governance and Compliance analytics
GRC Tools, Data Security & Privacy, IAM
Data management and services
BCBS 239, Risk and Finance Alignment, Big Data Implementation and Analytics
Technology
Infrastructure Operation, Cloud Security & Support, Application Operation & Support, Application Development & Maintenance, COTS Product Implementation, Managed Business Services (BPO)
Financial Change management, Domain-Based Advisory, Consulting and Co Sourcing

Success Story

Singaporean Multinational Banking and Financial Services
Large Irish Bank

Functional Area: Model Development

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Engagement Description :

The bank had been struggling to get validation of credit risk models for approval by the regulator. The bank reached out to HCL for performing an independent audit and deep dive validation of their key credit risk lending models

HCL's Solution:

Assessment, review, and challenge of the outputs of the Irish Banks’ model validation program. Devised co sourcing test plan for testing periodic validations of the 5 IRB Credit Risk Models. Conducted Tests on the risk models including Mortgage PD andCorporate PD, , drafted the final audit report for R&C assessment. HCL played a role in the client’s 3rd line of defense supporting the Risk Audit function. The results of the Audit was used to gain local Regulatory Supervisor approval, ensuring the right level of testing and controls work was deployed to independently validate the client’s Risk modeling. The R&C validation unit and co-sponsored project steering review team setup by HCL became part of the governance framework for the overall Risk Audit, thereby ensuring scrutiny, high quality results and adherence to the local central bank and Basel regulations.

Benefits:
  • All tests in the Audit plan were executed as pertaining to the overall Risk Audit schedule communicated in the governance status reports.
  • Issues identified on collateral data feeding into the rating systems allowed client to note to regulator dealing with IRB model approval to plan for any further remediation work with HCL able to support.
  • Recommendation given to automate the current Audit capture and workflow system a manually intensive process and offer better solutions to undertake the same functions without the need for so much manual intervention. Identified future benefit for audit team to reduce audit times as well as make improvements on documentation and align to the banks strategy around maintaining an efficient digital footprint.
  • Business processes for SAS data capture and transfer flagged for future improvements. HCL able to offer AI, machine learning and Risk analytics products Actian Vector which can perform Risk aggregations and produce complex Risk calculations to enable risk processing and improve data quality

Compiled final results of IRB model review

Traditional 'Big Four' Irish banks
A Leading UK Bank

Functional Area: IFRS 9 Compliance & Forecasting Credit Losses

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Engagement Description:

The bank must be enabled to be compliant with the IFRS9 regulations within strict timelines and be able to forecast credit losses

HCL’s Solution:

Analysed data gaps (Risk data including PG, LGD, EAD) proposed data solution, performed data modelling, designed and built IFRS 9 data mart. Involved in the requirements gathering, analysis, design and development phase to provide impairment related data to comply with the regulations from IASB. The reporting framework applied disclosure requirements, prepared group financial reports including the banks subsidiaries. This was a global solution for the bank which covered Europe, Middle East, APAC & Africa.

Benefits:

Avoided huge penalties and business restrictions due to compliance with IFRS 9 and was able to produce a daily feed of data without compromising on processing time and data quality. The bank had seamless coordination amongst risk, business and finance units.

Life and General Insurance Agencies in Singapore
A Leading UK Bank

Functional Area: Enterprise-wide multi-year Risk Transformation Program

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Engagement Description:

Define a consolidated solution platform to deliver requirements across key strategic risk transformation work streams (EC, Modelling, Stress Testing, Risk MI)

HCL’s Solution:

HCL’s Architects followed the TOGAF standards to develop a target architecture view by using a scorecard-based evaluation of vendor platforms. The participants in this activity were the key business and IT sponsors’ who ranked the vendor platforms and provided an objective measure for future vendor selection. HCL helped define and build the Enterprise architecture and Risk transformation Program architecture to address all corners of the business. The R&C models were implemented on data, business, technology, and application. Several interfaces were created amongst these pillars to eliminate risks and adhere to organization, and industry compliance methodologies.

Benefit:

A governing organization was setup to enable strategy, ensure review boards were the check posts, optimal portfolio management, and technology lifecycle roadmaps were in place. This resulted in achieving the target architecture using industry best practices and provided objective criteria for vendor solution evaluation, resulting in robust decision making; Generated TCO reduction of c. 30% Application simplification (12 platforms rationalised to 2)

Australian Multinational Bank
A Large European Investment Bank

Functional Area: Building a Market Risk Platform

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Engagement Model:

HCL has implemented a bespoke Market Risk Platform. As a part of implementation HCL has owned end-to-end delivery of the Platform, Change Management, & Transition Management

Solution:

HCL has supported the bank in implementation, and transformation of its Market Risk Management Landscape through changing economic conditions and evolving regulatory norms covering all measures required for Basel II, II.5 and III. The platform has helped in achieving insights and transparency into the banks risk exposures, from clearing and settlement costs and uncertainties. The platform has optimized processes, worked collaboratively with all the business functions, and drove operational excellence.

Benefit:

Progressive reduction of 80% in calculation runtimes along with massive increase in transaction volumes in Credit and Market Risk Landscape. The strategic risk data lake continuously acquired data and performed high speed provisioning. The reference, operational and market data were used for further risk analytics & reporting at strategic, operational and tactical levels. Multiple layers were built on the platform for producing dimensional reports in Finance & CCAR.