SAS KPMG Alliance Risk Management - PowerPoint Presentation

1. SAS KPMG Alliance Risk Management

2. Risk Management is a core strength for SASAcknowledged leader in Risk Management SolutionsDeployed in 50+ countries by 1,400+ organizationsTop 3 vendor for the 7th consecutive year (2016)Ranked as a category leader for:Enterprise Stress Testing Systems (2015)Risk Data Aggregation and Reporting (2016)Model Risk Management Systems (2014)Credit Risk Analytics Solutions (2014)Solvency II Solutions (2014)

3. KPMG’s Risk Analytics PracticeKPMG’s Risk Analytics practice provides professional services to complement the SAS ECL risk platform and solve our client’s challenges around their CECL transition. Service areas include:Project StrategySystems and DataModeling and ValidationAccounting and Reporting

4. SAS – KPMG AllianceKPMG is a SAS Gold Partner working together in the area of Risk ManagementKPMG is the exclusive risk services partner for the SAS ECL platformSAS works with KPMG together globally to solve ECL challenges related to US GAAP CECL, IFRS 9, and other regulatory and risk challengesKPMG and SAS have been jointly working on CECL since 2017 and share numerous joint wins in the marketplace

5. CECL OverviewNew US standard for Credit Impairment AccountingPrinciple-based GuidanceEffective from 2020

6. CECL Overview Some key changesCECL (ASC 326-20)Current Standards (FAS 5, FAS 114)Incurred Loss ApproachExpected Loss ModelProbable loss thresholdNo probable loss thresholdLosses expected to incur over the next 12 monthsLifetime expected losses from day 1Forecasts over loss emergence periods“Reasonable and supportable” forecasts + reversion to historical informationWide latitude for judgmental adjustments based on qualitative and environmental factorsIncreased granularity of judgmental adjustments on front end – including assumptions on economic projections

7. Key RequirementsBy Major StakeholdersCollaborative frameworkTechnology: leverage and enhance current technology assets - in a centralized, controlled, and scalable environmentFlexibilityEase-of-useProcessing speedCapacityCompatibilityImplementation TimeSecurityGovernance and ControlReporting

8. SAS Expected Credit LossModular Approach Within Model DevelopmentModel Execution & ExplorationModellingTime Series ForecastsPD, LGD, EADPrepaymentsLoss RatesExposure ModelsMacro EconomicsReporting & AnalyticsModel ManagementIFRS 9 / CECL introduce significant complexities and uncertainties:Required enhancements to models and processesInterpretation of principle-based standardsPotential hits to income and capitalEarnings volatilityNecessitates coordination of work efforts in a highly controlled transparent environment:Model developmentModel execution & explorationProduction & workflowReporting & analyticsModel Deployment & Scenario DefinitionECL CalculationsStage AllocationSensitivity AnalysisProduction & WorkflowWorkflow AdministrationAggregation & AdjustmentsAccounting PostingProcess GovernanceDisclosure ReportingAdvanced AnalyticsGranular Data AnalysisReference DataThird Party DataScenario DataPortfolio DataCollateralGL DataMarket Data

9. SAS Expected Credit LossPowerful Model Implementation PlatformTransparency and ControlEfficient Model ManagementBusiness ChallengesInefficient executionResource-intensiveMulti-period projectionsLack of adequate controlSolution HighlightsExecute loan level modelsInteractive selection and executionIn-memory processingWhy SAS?Quick, streamlined model implementationSimplified executionAdvanced technologyKey PointsHigh-speed Analytics

10. SAS Expected Credit LossReducing time and risk of implementationRequirements and PrioritizationReview Accounting PoliciesReview Models & MethodologyDefine Governance & ControlsReview Data RequirementsHigh-Level ArchitectureReview and validate install in the defined environments.Define data structure.Define standard rules definition and terminology of processes, model, ETL, GL reconciliation. Define staging and allocation rules.Implement models for one portfolio.Define roles and workflows for review and adjustments.Sprint 1Focus: Incorporate improvements identified in the first sprint in order to get a stable end-to-end solution.Implement remaining models.Integrate model outputs into workflows and comprehensive reporting.Testing and re-runs.User acceptance tests and Identification of defects.Sprint 2Focus: Finalization of the models, disclosure reports, and rollout.Address unresolved issues identified in first two sprints.Provide training documentation and support. Sprint 3Assessment10

11. SAS Expected Credit LossKey BenefitsResource constrained and already substantially invested in Basel and Stress Testing infrastructureReduces implementation time and costLeverages existing data mart and modeling processesSimplifies implementation of complex ECL estimation process1Your ChallengeSAS Expected Credit LossPrinciple-based regulations lack implementation specificsPROVIDES Flexible and transparent environmentOpen modeling architecture is adaptable to changing interpretations and demandsImplementation must conform to heightened governance regimeConsolidates and Manages workflowWorkflow and governance tools aid process management, instill strong controls, and improve auditabilityNeed an efficient and sustainable process to complete complex ECL estimates within time-constrained production cyclesCreates a high-performance allowance processDistributed processing power provides extremely fast computationsCentralized management coordinates all process activities234

12. KPMG and SAS Software and Services for CECLSAS data mart & data management toolsSource, transform, and load relevant CECL data from any number of data warehouse and origination systemsModel Implementation Platform (MIP)Configure and edit model implementation templates for each portfolio and set of models needed for ECL calculationsEnhanced time to production and runtime environments for CECL modelsModel execution and production automationManage production process flows with security and auditabilityResults review and effective challengeDashboard views to review model outputsManage qualitative adjustments and allocationAccounting and reportingCreate journal entries and CECL disclosures Update management dashboards, views, and details reportsData sourcing and data quality controlsAssess data sources, quality, controls, and lineageCreate source-to-target mapping, data ETL jobsModel design, development, and implementationChampion, challenger, and benchmark model designModel estimation and calibrationModel implementation an prototypingModel execution and production automationCECL process flow, internal controls, and second line reviewResults review and effective challengeModel output review and supporting analysisModel design and limitation documentationAccounting and reportingAccounting policy and SOX control documentationDeficiency remediation and CO attestation

13. CECL Change Assessment7 Step ProcessKPMG and SAS utilize a seven-step approach for change assessment, which includes a readiness diagnostic. The results of this diagnostic allows us to focus the remaining activities on those areas that are most critical to the success of the project. The outcome of the overall assessment phase will facilitate optimal structure of the subsequent design and implementation phases of the CECL transition.

14. CECL ChangeImplementationLeveraging the gap analysis and information obtained during the assess phase, the project next moves into the design phase. KPMG and SAS work together to assist the Bank in designing appropriate accounting policies, operational practices, models, and systems & data management approaches in order to create CECL compliant loss projections. This will be the basis of governance and business requirements designed for CECL loss forecasting, and inform the implementation choices made in the final phase.

15. CECL ChangeDesignKPMG and SAS will assist the Bank in implementing the CECL compliant practices scoped in the assessment and design phases. Using SAS’ proven phased approach for implementation, an initial end-to-end configuration is executed on a representative set of portfolios. This pilot is then expanded to include all relevant portfolios, followed by refinement and testing prior to a final CECL go-live.

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