Turning regulatory compliance into a business advantage: How UR-Risk and ActiveViam optimize data for better decision-making and profitability

ActiveViam

ActiveViam and UR-Risk have been successfully collaborating for a number of years delivering business value and regulatory compliance by providing solutions around FRTB and Market Risk. In this article we look at how the joint approach addresses issues related to:

  • getting insights
  • making better decisions and 
  • improving the profitability of the firm

We start by looking at the data and compute challenges created by FRTB. We also discuss strategies for optimisation and show how FRTB can be a catalyst for deeper insights, better decisions and improved profitability while, at the same time, satisfying the demands of regulators under different jurisdictions.

FRTB and the data challenge of the future

The Fundamental Review of the Trading Book (FRTB) has introduced stringent market risk capital requirements that demand precise, large-scale data analysis. The Internal Models Approach (IMA), especially the Default Risk Charge (DRC) component, significantly strains financial institutions due to the immense volume and complexity of data required. For banks this means not only a considerable investment in data infrastructure, but it also poses operational challenges in ensuring the correct data is used for timely and accurate decision-making. While most banks by now have deployed an architecture that outputs risk figures according to FRTB guidelines, many are struggling to keep pace with the actual demands of the regulators. The requirement to explain risk figures, not just report them, is an entirely different challenge that hasn’t yet been met everywhere.

On the other hand, the publication of these regulations is only one step in the ever-increasing complexity of risk management modelling. In the future, more and more detailed data will be required, so it is necessary to be prepared.

Use case: FRTB framework optimization

When the first news about the FRTB began to emerge, financial institutions immediately recognized the upcoming challenges. They proactively sought to understand the technology and data requirements for producing the new metrics, taking their current Market Risk frameworks as a starting point.

Early indications pointed to significant investments in infrastructure and software capabilities to meet the anticipated calculations required by the new regulations. At this point, UR-Risk supported their partners in conducting detailed analyses of their risk frameworks, providing comprehensive support for sizing analysis, data gaps, and cost estimations to ensure they were well-prepared for the challenges ahead.

During this phase, UR-Risk looked not only at the hardware capabilities but also at understanding how the infrastructure was used and how optimized the calculations were: given the market risk requirements and the 8-fold increment of scenarios, the new regulations could exceed the delivery requirements.

The objective was to allow risk management users to dedicate more time to generating business than purely metrics. UR-Risk’s response was to define the strategy for a data-driven enhancement of the Market Risk framework, enabling users to get the results promptly and leaving valuable time for performing the risk analysis.

Given the time constraints for creating the FRTB framework, UR-Risk introduced solutions that can gather the inputs to the calculation engine in memory and enhance the data structure from a financial perspective, avoiding a massive intervention of their current data model.

Correct representation and use of data enhanced performance in calculating the measures and improved the risk analysis of the business users and decision-making for top management, resulting in cost-benefits across the institution.

UR-Risk’s Expertise 

In this context of ever-increasing amounts of data and complex regulations, UR-Risk stands out when it comes to advising financial institutions to find customized solutions that not only meet regulatory requirements but also simplify operations, reduce costs and increase the value to decision-makers.

Over the years, UR-Risk has been a reliable partner, accompanying several institutions in their journey to improve their risk management frameworks and supporting them in introducing and performing more advanced analytics.  This has been achieved by adopting flexible and efficient architectures driven by regulatory and managerial requirements.

Where many institutions struggle with data overload, UR-Risk advisory aims to efficiently manage vast datasets required for calculations, reducing the strain on computational resources and ensuring accurate and timely risk reporting. Their expertise lies in:

  • Data governance: Ensuring that only the most relevant and high-quality data is fed into the risk models, thereby reducing data noise and improving the performance of calculations.
  • Performance optimization: Data flow simplification enables real-time analysis, which is critical for managing the massive scenarios and stress tests imposed by regulators.
  • Minimize disruption: By working with existing infrastructure and enhancing it, institutions can avoid costly and time-consuming overhauls.

Through partnerships with UR-Risk, institutions can save money by optimizing their data pipelines and infrastructure, ensuring their investment compliance drives tangible business value.

How can Atoti help?

UR-Risk is constantly looking for vendors who can provide specific solutions. This research has led to the partnership with ActiveViam.   Their Atoti solution for FRTB offers a powerful tool for calculating the regulatory metrics and for a deep understanding of the risk and risk drivers.

Why Atoti?

  • Real-time risk metrics: Atoti enables instant risk metric calculations, allowing for side-by-side comparisons and immediate insights without rerunning the entire calculation engine.
  • Handling data at scale: By processing data directly in memory, Atoti reduces latency and accelerates calculations, making it easier to meet reporting deadlines.
  • Full transparency: with a limitless ability to drill down to the trade level and drill through hundreds of hierarchies, analysts can quickly and easily isolate outliers and identify the change drivers.
  • What-if scenarios: analysts can simulate various scenarios on-the-fly, empowering them to perform stress testing or measure risk exposure under different market conditions, providing critical insights to senior management without delay.
  • Capital allocation: A complete understanding of the current state through what-if and data granularity makes it possible to allocate budget and build portfolios optimally. Multiple methodologies to optimize the allocation of the cost of capital to the various activities of the bank (e.g. Euler, top-down, bottom-up) are available in the solution.
  • Exhaustive coverage: Atoti can run SA, IMA and PLAT, individually or integrated together to maximize efficiency.
  • Industry recognition: ActiveViam is an ISDA certified software vendor and a three-time winner of the Risk.net technology award for Best FRTB Solution
  • Light-touch deployment: Atoti fits neatly on top of pricing engines without disrupting the existing architecture and avoiding redundancies. Using market standard input files (e.g. CRIF for SA), Atoti can be deployed quickly in virtually any environment, including all cloud platforms.

These features allow institutions to comply with the regulation in multiple jurisdictions and to drive added value through actionable insights, which can support strategic decision-making and more proactive risk management.

Why UR-Risk & ActiveViam?

The partnership between UR-Risk and Atoti offers institutions a powerful and cost-effective solution for navigating the complexities and data quality challenges. This collaboration leverages UR-Risk’s deep domain expertise in risk management and Atoti’s advanced analytics platform to deliver tailored solutions that goes beyond compliance and provides tangible business value.

UR-Risk’s expertise lies in assisting institutions in finding customised solutions that not only meet regulatory requirements but also simplify operations, reduce costs, and enhance the value of risk data for decision-makers: they have a proven track record of supporting institutions in improving their risk management frameworks and implementing advanced analytics through flexible and efficient architectures driven by regulatory and managerial needs.

ActiveViam’s Atoti, on the other hand, enables real-time risk metric calculations, allowing for immediate insights and side-by-side comparisons without rerunning the entire calculation engine. Its ability to handle data at scale by processing it directly in memory reduces latency and accelerates calculations, facilitating timely reporting. 

Through this collaboration, institutions can optimise their data pipelines and infrastructure, ensuring that their investment in compliance translates into business value.

Conclusion

By prioritizing data quality and implementing effective strategies, organizations can unlock the true potential of their information assets. This fosters informed decision-making and optimizes operations, ultimately driving sustainable growth.

Good data is not just a regulatory requirement—it’s a business asset. With UR-Risk and Atoti, financial institutions can transform the burden of regulatory compliance into an opportunity for greater insight, better decision-making, and improved profitability. By prioritizing data quality and operational efficiency, institutions can unlock the true potential of their data assets and drive sustainable growth.

Interested to learn more, contact our team today.

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