Operational RWA data quality and remediation

Our implementation of this tactical remediation process yielded a material 30% reduction in risk weighted assets.

The challenge

The Simplified Supervisory Formula Approach (SSFA) to calculate risk weighted assets, and ultimately capital requirements, requires a number of critical parameter inputs. Such parameters include the capital charge of the underlying pool of assets, delinquency rates on the underlying pool and tranche attachment and detachment points on the liability side.

Ensuring that these parameters can be correctly determined, sourced or by proxy, calculated and/or derived, for all trading book positions, is of paramount importance – otherwise data quality gaps attract punitive treatment, and will often result in a full deduction for the position, such as a 1,250% risk weight application, leading to unnecessary (and inaccurate) inflation of capital requirements.

Our approach

Our aim was to define the remediation waterfall to ensure data completeness for RWA and capital calculations.

Our impact

By leveraging existing data sources, and performing a thorough historic delinquency analysis, we defined a successful remediation process and seamlessly transitioned to business as usual operations. We delivered:

  • data flow intervention and remediation completed by T+3 after period close;
  • clear control and ownership for each remediation process step and relevant data;
  • the unresolvable parameter remediation reduced to zero by month 3;
  • clean and concise step-by-step process and ownership documentation, ensuring effective transition to BAU, which in turn became self-maintaining three months after conception;
  • period-on-period comparison functionality, which consistency in approach and audit.

The application of a new BAU data quality remediation waterfall realised significant and measurable risk-weighted asset benefits, reducing them by approximately 30% across the book, even with a significant position churn of around 45% month-on-month. We enhanced our clients’ existing capital chain technology, providing the necessary override functionally to capture and process all remediated parameters.

Meet our specialists

Joseph Cataldo

Managing partner