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The advent of new regulations such as the Basel II Accord and the need for more rigor and visibility in managing risk are driving financial services institutions to seek out new systems and processes that decrease exposure to unseen, miscalculated credit and operational risk. One common root cause of miscalculation or operational error is incorrect, incomplete, or inaccessible counterparty reference data.

To address this problem, organizations should implement a reliable, persistent repository (or hub) of counterparty reference data. While many organizations may look to re-purpose existing technology platforms such as CRM applications or Data Warehouses for these requirements, it is not recommended as it is not only a complex and costly exercise but worse it typically achieves only limited success. A new and purpose-built technology is needed; a master data integration and management hub designed to solve these very challenges. Further, the hub will integrate, manage, and share the trusted and globally complete views of the counterparty, the hierarchy of parent/subsidiary relationships, and dynamic links to credit ratings, positions, and transactions.

More specifically, the hub provides financial service companies with valuable capabilities including:

  • Improved accuracy of measuring credit risk
  • Visibility and drill down of counterparty risk exposure by industry concentration, geography, arbitrary rating units
  • Active monitoring of activities triggering business rule driven alerts

These capabilities yield benefits beyond Basel II compliance; in fact, organizations taking this approach can also optimize risks and improve their capital efficiency. They also will have built the basis for improved reference data for CRM, compliance, trading, and risk systems-- thereby transforming their compliance initiatives into a competitive advantage.

The Basel II Opportunity

Today, smart financial institutions are finding ways to leverage compliance initiatives such as Basel II to advance their business and increase competitive advantage. One common theme is maximizing capital efficiency.

With the general requirement for more rigor and visibility in managing credit risk and exposure, financial institutions need new systems to increase transparency and reliability of identifying the counterparty legal entity. Furthermore, risk managers want to view aggregate exposures according to exposure mitigation techniques. This requires flexibility in risk analysis, reporting and drill down to consolidate exposure at different levels such as bank structure, asset class, geography, product attribute, and arbitrary rating units.


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