Project Description

FiRisk Consulting led the Global Markets Prime Brokerage LOB Integration work streams for our client to ensure compliance with US Basel II and III Final Rules. This set of rules requires a financial institution to maintain sufficient capital for solvency and helps identify, manage, and report financial risks. As such, there was a specific focus on LOB rule compliance and ensuring a clear understanding of the LOB’s RWA charge including key factors which create and reduce RWA. The scope of the project include Prime Broker client which typically engaged in margin lending and non-margin lending trades.

Business Case

Large banking institutions are mandated under the Basel rules to establish rigorous risk and capital management requirements designed to ensure that the bank holds capital reserves appropriate for the risk the bank exposes itself to through its lending and investment practices. Ultimately, LOB activities are what drives an institution’s risk exposure and RWA and should therefore understand, own, and be accountable (via RWA charge) for these activities. By clearing and shortening the lines of ownership and accountability to those originators of the trades and strategies, it is thought that an institution may better understand and control their capital charges.

Project Objectives

Provide BASEL RWA LOB integration leadership, SME and project management for the Prime Brokerage business. The primary objectives of the initiative were to drive and facilitate LOB BASEL compliance, in addition to aiding the LOB in understanding and owning its RWA.

Services Provided

FiRisk Consulting was responsible for managing and executing on the following scope:

  • Ensure BASEL II compliance and be a primary accountable party for demonstrating and defending that compliance
  • Educate and inform the LOB about the BASEL II and upcoming BASEL III rules
  • Develop “LOB RWA Dashboard Reporting”, which would aid the business in monitoring it’s BASEL reporting compliance and potential suboptimal RWA occurrences (e.g. – collateral application, haircutting, and asset type trending; PD distribution analysis, client portfolio review based on concentrations)
  • Advise on and develop optimization strategies to help resolve defects or reduce total LOB RWA (e.g. – orphaned collateral or suboptimal haircut or netting set applications)