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SAS helps banks comply with IFRS 9 accounting standards

GRC Announcements | December 2, 2016

Shifting regulatory compliance and financial standards create an urgent need for banks to dismantle barriers between finance and risk departments. SAS Expected Credit Loss is a new solution that’s helping them succeed.

To manage the massive amounts of required data and increasingly complex models, corporate functions that have historically analyzed and reported in their own data silos will need to come together. Working within a single, transparent and controlled SAS modeling and reporting workspace allows banks to establish processes across departments. Not only will that enable them to meet the expectations of auditors and regulators, it reduces the costs of compliance by minimizing duplication and errors.

The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) may have diverged along the path to a common accounting standard for expected credit losses (ECL), but both want to avoid a repeat of the 2008 global financial crisis. As a result, they have issued their respective standards known as International Financial Reporting Standard 9 (IFRS 9), and its U.S. variation, Current Expected Credit Loss (CECL).

The common thread linking the two standards: increased complexity and granularity. Whether reporting under IFRS 9 or CECL, the data and modeling required to project future credit losses and impairments are more detailed and asset-specific. Additionally, the SAS platform’s capabilities can be used by companies for other purposes such as stress testing.  

“The main challenge with IFRS 9 and CECL will be ensuring a strong governance structure for model storage and modification that is consistent between departments,” said Peyman Mestchian, managing partner at Chartis Research. “SAS has the experience to integrate data management, advanced risk and finance methodology to meet regulatory requirements. SAS Expected Credit Loss provides a structured environment for the overall impairment process, which should make it easier for users to interact with different types of analytic model and manage the analysis in a controlled environment.”

Compliance with IFRS 9 and CECL is no small feat. The new standards are expected to significantly raise the overall loss reserve requirement for banks, which will affect their profitability and capital. It is important for banks to proactively address these new regulations to avoid sanctions, fines and worst case, another economic collapse. 

Leading businesses in the financial industry are addressing multiple requirements with SAS Expected Credit Loss, which combines support for accounting standards, as well as stress testing compliance. Bancolombia, Bank of Montreal, Coventry Building Society, Standard Chartered and Swedbank for example, have chosen SAS to manage IFRS 9 impairment requirements.

Largely principles-based, the new accounting standards leave room for interpretation and will require evolving adoption. Banks and companies under IFRS accounting standards will need to refine their calculation methodologies over time and will need a solution that can facilitate this progression.

SAS Expected Credit Loss is a comprehensive, modular platform that supports the overall calculation and reporting process – from data management, modeling and impairment estimation to forecasting, accounting and reporting.

As with other accounting and regulatory compliance standards, transparency and auditability are key aspects. SAS Expected Credit Loss can help organizations implement strong governance and bridge the data and reporting requirements necessary for both risk and finance departments.

“The new accounting standards offer a perfect opportunity for banks to take a hard look at internal silos,” said Martim Rocha, director for risk business consulting at SAS. “IFRS 9 can be a catalyst for increased integration of risk and finance. A common data repository and model management workspace lessens the overhead of managing multiple platforms and will strengthen the audit trail.”

To learn more, download the white paper Navigating the route to IFRS 9 compliance, and see how Swedbank is working with SAS to manage impairment requirements for IFRS 9.