Business Challenges

The client was one of the largest wealth managers in the world. The bank required functional support to build a Capital Calculation engine for Basel II Standardised and Advanced Approaches. It involved gaining an understanding of the local regulatory guidelines, customizing Aptivaa’s proprietary capital calculation engine to meet the requirements and to integrate the engine with the clients existing systems.

Our Approach

The project involved

• Preparing Business Requirement Specifications for the client
• Performing data gap, data preparation and data mapping exercise for the client and
• Building a collateral optimization engine for both the Advanced and Standardised Approaches
• Building a Regulatory Retail Exposure (RRE) optimization engine
• Assisting the client in framing the the Extract, Transform and Load (ETL) logic
• Data Integration
• Preparing User Acceptance Test (UAT) cases for validation of calculation logics for all the entities and support the bank in reconciliation.

Outlined below is the approach followed by Aptivaa broken down on the basis of activities mentioned above

Business Requirement Specification:The activity involved understanding the guidelines for capital calculation as per the local regulator and framing the requirements for implementing the engine for standardized and advanced approaches.

Data Gap, Data Preparation and Data Mapping:This stage involved conducting an ‘as is assessment’ against the requirements of the standardized and advanced approaches and identified the steps needed to bridge the gap.

Collateral Optimization: A collateral optimization tool was built to optimize the benefits of credit risk mitigation offered across facilities, to obtain capital relief, if any for Standardised and Advanced Approaches.

Regulatory Retail Exposure Optimization: Aptivaa also customized the capital calculation engine to incorporate a regulatory retail exposure optimizer as per the special guidelines issued by the local regulator.

Data Integration: The Data integration process involves conducting a data gap analysis and identifying the appropriate data fields in the Source systems, Data Mapping exercise the client and performing checks on data for quality and suitability and writing ETL logics for data transformation.

User acceptance Testing: Comprehensive test cases were prepared for user assurance testing. This covered all the asset classes and all the business/ products of the client. Reconciliation of the regulatory reports was done with the bank's MIS systems.

Business Benefits

The Bank was able to calculate, accurately and in compliance with the different regulatory guidelines, the pillar I capital charge for credit risk under the standardized and advanced approach. Validation of the calculated figures was also done by developing a comprehensive repository of regulator specific UAT cases. The collateral optimizer and the RRE optimizer customized specifically to meet the client’s needs are a real value add for the client as it translates directly into a demonstrable capital relief for the client.