SEB – A new solution to ensure compliance and manage risk
“With the installation of Algorithmica Research’s IRRBB Solution we will leverage our current market risk installation giving substantial advantages when calculating IRRBB both in speed, efficiency and flexibility.”
- Edwin Luppert, Head of Market Risk at SEB
SEB is a leading Nordic financial services group, founded in 1856. To manage new, tough IRRBB demands SEB selected Algorithmica’s IRRBB risk and planning tool for their global regulatory and internal risk control needs. The solution handles all standardized EBA stress tests and comes with a range of modeling options to manage different business assumptions. The new solution contributes to compliance with the new legislation as well as improved risk mitigation of risks closely related to the core business. Efficient risk management of interest risk is crucial for keeping the bank safe and sound.
Facing new legal requirements regarding ITS regulatory and internal IRRBB risk control, SEB were in need of a new solution for their Global Risk Control reporting needs. This included both local branches regulated under EBA as well as the head office in Stockholm. IRRBB touches the very core of the business and managing IRRBB is essential for not only ensuring compliance but also enabling in-depth analysis of interest earnings under adverse conditions and margin effects stemming from customer behavior. The legislation, valid from June 30 2019 for European regulated banks and for Sweden it is expected within a year, includes rigorous demands regarding controls and stress tests to clarify and assess risks in the banking book. As the regulator prescribes a set of standardized stress tests to be performed, it does not in detail describe the other model features. Therefore, modeling flexibility was a key demand.
The provided solution, the IRRBB-module of Algorithmica’s risk system ARMS, can deliver all standardized EBA stress tests pre-configured, with a range of modeling options for deeper internal analysis of economic value and earnings risk. It is fast, accurate and flexible to ensure that the solution supports SEB’s business model and ways of operating while catering for differences in contract specifications and business model assumptions. A unique feature, contributing to desired flexibility is the open architecture of ARMS, where SEB use the built-in Qlang coding language for extension and adaptation. Customization was an important part of the delivery. No two financial institutions are alike and great flexibility is essential.
“The cooperation with Algorithmica Research has been very rewarding and has enabled us to tailor the solution to both internal and external risk measurement needs”Edwin Luppert, Head of Market Risk at SEB
Using the new IRRBB solution allows SEB to deliver all reports, live and dynamically, in time thereby ensuring compliance with the new, demanding legislation. The flexibility of the solution has contributed to improved risk mitigation by letting SEB perform more accurate stress tests based on their business and business assumptions.
The IRRBB module is not just a report module. SEB also uses it in the daily work with follow-up, analysis and control, which further contributes to detecting and managing the risks in question.
SEB already uses ARMS for managing market risks. Already having ARMS installed, with all the millions positions already in place, significantly reduced costs and implementation time. For companies who begin with the IRRBB-module, similar gains can be won when adding other modules for analyzing for example market risk, counterparty risk and liquidity management.