All Blog Posts

Eight powerful tips for managing complex implementation projects

Managing implementation projects becomes more difficult as their technical complexity progresses. The challenges faced by project managers may include the lack of technical expertise required in quality assessment and staffing activities, failure to address the communicative issues or letting go of the underperforming project staff. This article suggests eight powerful tips for leading convoluted IT implementation projects, which would protect the workflow from the common pitfalls and help you reach your goals.

Project Management | Implementation | Look-Through

May 2019 News Update

The introduction of automated financial advice services did not go successfully for some of the large and reputable wealth managers. As some of the industry players cease their robo advice offerings, we explore the reasons why big banks struggled to tap into the customers' demands. Meanwhile, machine learning solutions continue to expand to various business functions throughout the increasingly digitalising economies. However, little attention is paid towards the quality and the transparency of the decision-making powered by these "black boxes". Finally, in the world of accelerating personalisation standards, it is crucial to expand the innovation efforts beyond the interfaces and use the technological capabilities to improve the actual offerings.

FinTech | Risk | News | Machine Learning | Artificial Intelligence

April 2019 News Update

We are delighted to present our analysis of the top April trends within the financial industry! This month we identified the growing need for risk expertise among the asset managers striving to provide truly sustainable financial advice. Moreover, we see that a different set of factors determines the competition among the digital offerings in asset management compared to the traditional financial advisory services. Additionally, we firmly believe that it is crucial for the financial institutions to measure and prepare for the impact of the looming -IBOR transition early on, and come up with an appropriate action plan to minimise the adverse PnL effects.

News | FinTech | Risk | Regulations | RegTech

End of LIBOR Event Summary

We are delighted to present a free summary of a recent event hosted by Kidbrooke Advisory in a partnership with FinCAD and Erik Vynckier dedicated to analysing the consequences of moving away from -IBOR. The discussion involved exploring differences between the -IBOR and the alternative reference rates, technical aspects of the transition, fallback contracts' intricacies and their potential impact on the trading positions, as well as the situation at the Swedish market.

Regulations | RegTech | News

Summary: Swedish FSA releases consumer protection report

The Swedish Financial Supervisory Authority (FI) releases a yearly consumer protection report featuring customer security highlights in the Swedish financial industry. As in the previous years, the main risks related to customer security relate to mortgages and loans. The interest payments can potentially threaten the economies of the individuals in case of the economic downturn or the increase in interest rates. Another threat that is amplifying in the context of the digitalising society relates to customer data protection. The FI calls for more advanced security systems that would protect the consumer at all stages of a payment transaction. The improvement of these solutions is especially relevant in the context of increased instances of financial fraud. Finally, FI announces that the protection of the wealth management customers and the enforcement of the MiFID II requirements regarding third-party inducements becomes a vital area of the regulators' future work.

News | MiFID II | Risk | Regulations | RegTech

March 2019 News Update

We've selected the most relevant global news within the fields of automated financial advice, data intelligence and balance sheet risk this March. The rise of the robo-advisors concern the brokers, although many see this development as a helpful complement to the traditional wealth management business, stressing the regulatory burden as well as IT legacy systems' challenges. Meanwhile, Brexit leads to a spike in risk-aversion among the customers of Do-It-Yourself investment platforms. On the balance sheet risk side, the experts stress the importance of timely preparations to IFRS 17, FRTB and the transition from LIBOR. The machine learning tools are put to use in fraud detection in the banking industry context, and the Positive-Incentive ESG-based Loans gain prominence among the banks and corporations.

News | RegTech | Regulations | Machine Learning | FinTech

Women in Quantitative Finance: Interview with Mika Lindahl

We are excited to share the story of Mika Lindahl, an associate consultant and a team manager at Kidbrooke Advisory. She has been working at the company for more than 1.5 years now, successfully balancing deep technical expertise with excellent leadership skills. In this short interview piece, Mika tells us about her career choice, her role in quantitative finance and her message to women considering a similar path.

Risk | Solvency II | News | RegTech | FinTech

February 2019 News Update

We are excited to present our news selection for February 2019! Although anticipated to be a conventional means of providing investment advice in the longer term, automated financial advice is still an emerging subsector in the global wealth management industry. Some sources anticipate that the expansion and specialisation of such services would bring the developing digital advice providers to their maturity, while the early adopters evaluate the lessons learnt from the implementation of robo-advisers. Meanwhile, the large banks do not rush to engage in the FRTB implementation projects before the local regulators come up with the final version of the new rules. At the data intelligence side, the data scientists deploy artificial intelligence to assess the ESG practices of companies.

News | FinTech | Risk | Basel | Insurance

The Stockholm FinTech Week 2019: Summary

Last week Kidbrooke Advisory participated in the Stockholm FinTech Week 2019! More specifically, we had a chance to attend the events within the following areas: FinTech & Market leadership collaboration, RegTech, InsurTech, Sustainability and Impact Tech and finally Regulation & Nordic Collaboration. The discussions centred on the best practices in building cooperative relationships between the emerging industry participants and the traditional financial institutions, the role of the regulations and the regulators in a changing industry, the rising awareness of climate change as well as the potential of the cutting-edge technology adopted by the market participants.

News | Risk | FinTech | RegTech

End of LIBOR: A Rising Challenge for The Insurers

Driven by the consequences of the global financial crisis in 2008 and the LIBOR scandal in 2012, the world’s financial regulators set off the search for alternative reference rates that could better reflect the underlying market and would be more difficult to manipulate. Since financial institutions use the reference rates to design contracts of various kinds, the impact of this change will be considerable. However, most of the available analysis and other material on this topic describe the challenges of such a transition only for banks, frequently leaving out the insurers who are significantly affected by the change as well. Therefore, it becomes essential to highlight global best practices regarding the preparation for replacing the -IBOR in the insurance industry.

Insurance | Risk | Regulations | Solvency II | Volatility | News

January 2019 News Update

We have gathered the most exciting news in the areas of financial technology and regulatory changes this month. The latest revision of the FRTB framework receives mixed reviews from the industry. The automated financial advice providers around the globe expand to accommodate the demand from new types of customers - from large banks and insurers to self-employed entrepreneurs. The UK's Financial Conduct Authority changes its focus from the charges and costs aspects of MiFID II to implementing new rules around product governance and research within the scope of the same framework. The rapidly evolving AI technology is anticipated to change the accounting profession as it exists presently.

FinTech | News | Insurance | RegTech | Regulations | Risk

P&L Attribution: Similarities and Differences between FRTB and Solvency II

In this article, we discuss the challenges of implementing the internal model approach under FRTB and Solvency II. In particular, we focus on the P&L Attribution test, which financial institutions have to continuously perform and pass to maintain their eligibility for internal model use. The article outlines the similarities and differences between the two regulatory regimes that require the P&L Attribution test; FRTB for banks and Solvency II for insurance companies.

Insurance | Basel | Solvency II | SCR | Model | Risk

December 2018 News Update

We've summarised the most exciting news in the areas of automated investment advice and balance sheet risk. The large participants of wealth management industry explore the automated financial offerings, driven by the anticipations of double-digit growth of that market until 2023. The opportunities of automation have been contemplated by the UK's DIY investment facilitators and mortgage providers this month. Furthermore, in December the Basel committee published the report analysing and comparing the banks' cyber risk practices; the potential AI applications to accounting are being explored by the experts and the FRTB framework going live may be postponed.

FinTech | Basel | Regulations | Risk | News

November 2018 News Update

We've selected the most intriguing news from the domains of automated financial advice and balance sheet risk. The biggest global financial institutions carry on expanding their offerings with robo-advisors, while some of the established automated investment advice providers launch an option to pursue sustainable investments or compliment the digital experience with "human touch". Meanwhile, the industry continues to discover new applications of AI - for instance, modelling illiquid assets as a means of preparing to upcoming FRTB directive, or reducing the time spent on populating tax return forms.

FinTech | RegTech | Regulations | News | Basel

October 2018 News Update

We selected the most prominent news from the wealth management industry and balance sheet risk domain. Although the doubts are still there, more banks expand their product lines with digital financial advice offerings as the fees for traditional financial advice services gradually diminish. Meanwhile, the implementation of MiFID II still raises questions in the industry, especially in regard to research cost allocation. The ESMA has updated its Q&A to ensure a common interpretation of the imposed MiFID II and MiFIR directives. The challenges in regard to implementation of FRTB spark more discussion in the industry, while cyber risks and cloud technologies are being discussed by EBA in their new regulatory framework.

News

September 2018 News Update

We have gathered the most exciting highlights from the digital advice innovation landscape as well as the latest news related to balance sheet risk. Overall, the news indicates positive ground for the growth of automatic financial advisers although the industry has been surprised by the large player's withdrawal from the emerging digital advice offering. On the balance sheet risk side, cyber risk is gaining prominence as an operational risk, while the IFRS 17 is increasingly viewed as a catalyst for business model innovation for the insurers. Additionally, the use of machine learning is penetrating accounting industry, though it is not expected to cause disruption in terms of massive unemployment.

News | Cyber | RegTech | FinTech | Operational Risk | Regulations

Redesign and Reuse: Gauging the Non-Modellable Risks under FRTB

The set of Basel III rules finalized the development of the regulatory capital framework’s post-crisis reforms, accompanied by an industry's lobby battle. However, there is an element of the newly developed FRTB regime, which carries on keeping the industry leaders awake during the nights: the new approach to treating the non-modellable risk factors (NMRFs). This topic is gaining prominence both due to the knotty nature of these risks and because 29% of total market risk capital charges under FRTB could be attributable to NMRFs. However, we argue that despite the differences in the treatment of hard-to-model risks, the existing framework could still be put to use while addressing the new FRTB requirements.

Basel | Modelling | Risk | Regulations | RegTech | Model

The Automated Future of the Wealth Management Industry

Drastic changes in regulations governing the wealth management industry promise to alter the way these businesses operate. While the regulators are dedicated to make the private banking industry more transparent, stable, reliable and customer-centric, the industry is challenged to look for innovative solutions to keep the margins at sustainable levels. A half-day conference organized by Kidbrooke Advisory, Ortec Finance and Microsoft that took place in Stockholm on April, 19th 2018 featured a panel discussion among the most prominent wealth management industry professionals. The industry leaders shared their vision of the current challenges within the sector as well as their opinions on the future of automated financial advisories.

RegTech | FinTech | Regulations

The Dark Side of Digitalisation: Addressing Cyber Risks

The minimal criterion of success is an absence of failure. However, when it comes to information security breaches, it is safe to claim that this criterion is far from being met. A few prominent scandals in recent years demonstrate the scope and impact of such risks on the financial industry, influencing the EIOPA to include a cyber security questionnaire in its Cyber Risk Assessment Package. Gauging cyber risk is a challenging endeavour, marked by the sensitive character of the underlying data and a lack of established academic research within the field. However, Kidbrooke Advisory has formulated its take on the cyber risk assessment.

Cyber | Risk | Operational Risk | Regulations

Results from the Solvency II Review

In our blog post from last year, we summarised what to expect from the Solvency II regulatory framework review to be performed by the European Insurance and Occupational Pensions Authority (EIOPA). Now, EIOPA has released their final report containing their second set of advice regarding this review.

Solvency II

Cyber Risk to be Included in EIOPA Stress Tests

European Insurance and Occupational Pensions Authority (EIOPA) will this year run their fourth Union-wide stress test exercise. The overall objective is to assess the resilience of the European insurance industry against unfavorable market events. However, an interesting difference from earlier exercises is that EIOPA will include a separate analysis on cyber risk this year.

Cyber

Do No Harm: The European Commission Action Plan Urges Financial Advisors to Go Green

Corporate sustainability and responsibility has historically been regarded as a controversial topic both among the academic world and practicing professionals. As early as in 1970, the free market advocate Milton Friedman put forward a view that any sustainability-related actions are likely to destroy shareholder value. Nowadays, the reality of rapid depletion of resources as well as accelerating global warming drives the regulators to promote an opposite view of the sustainability impact on enterprise value.

Regulations | Risk | MiFID II

Balancing Innovation: Use Both Hands in Establishing Robotic Advice!

In the wake of rapid technological advancements and looming regulatory challenges, large players of the British financial industry turn to innovation as a tool to preserve the margins high and keep the customers satisfied. However, the extent to which the multinational giants commit to letting their new offerings cannibalize their traditional businesses varies dramatically.

FinTech | Modelling | Operational Risk | Management Action

Mitigating Risk: A Joint Model for High-Yield and Investment-Grade Credit Indices

Today, there are many flawed corporate bond pricing models. However, there is also a novel credit-spread approach that can simulate index prices and accurately capture probability of default, enabling better risk management and regulatory compliance.

Modelling | Solvency II | MiFID II | Basel | Risk | Volatility | Dependence

MiFID II: Are the ETFs the way to go?

MiFID II creates a downward pressure on the conventional investment companies’ margins and influences them to either turn to ETFs as a low-cost solution or take on a full-scale digital transformation of the business. However, there are some pitfalls on the ETF direction side.

MiFID II | Regulations | Risk | Operational Risk | Management Action

Stress tests for assessment of the capital planning buffer

Sweden's financial supervisory authority, Finansinspektionen (FI), use a stress testing method for the assessment of the capital planning buffer, reflecting how a firm is affected by a severe but plausible financial stress. The fundamental parts of the method is to be constant over time, while, however, a re-evaluation of the risk factor calibration is done on a yearly basis. FI recently released this years memorandum and the main changes from 2016 are...

Basel | Regulations

Infrastructure investments under Solvency II

The European Commission is interested in finding ways to get the insurance industry to invest more capital into infrastructure projects. In order to be able to reduce the capital requirements for infrastructure projects in the Solvency II framework a new investment class was proposed by the EIOPA called “Qualifying infrastructure investment”.

Solvency II

Capital Asset Pricing Model (CAPM)

The main objective of this article is to overview the well-known capital asset pricing model which is widely applied by financial analysts. Moreover, we discuss the crucial notions uCapital asset pricing model (CAPM) is a classical method in finance and economy that states the relationship between the risk and expected return. It is based on the fact that every investment's expected pays-off depends on the level of risk taking on. More precisely, the return of a portfolio consists of two components of time value of money and an extra rate (usually called risk premium) to compensate exposing excess risk.sed in the calculations of this model.

Risk

A parametric approach to haircut modelling

Determining collateralised derivatives haircuts is becoming an increasingly more important problem. At the same time, the method used today has been found to have significant shortcomings. To sidestep these issues industry is now looking towards a parametric modelling approach to determining haircuts.

Risk | Modelling | VaR | Volatility

Machine learning: A regulatory concern?

With the rapid adoption of artificial intelligence in the financial sector, banks are looking towards machine learning to stay regulatory compliant.

Regulations | Risk

Topics in Solvency II

In this piece, we aim at reviewing some basic notions that insurance companies are concerned with after Solvency II regulation framework going live.

Solvency II

Is CVA calculations a motivated tool when pricing derivatives?

In the latest issue of Risk.net magazine, esteemed professors Rama Cont and Riccardo Rebonato took part in a panel discussion where they questioned the legitimacy of using credit value adjustment (CVA) when pricing derivatives.

CVA | Risk

New proposals regarding the rights of pension savings movement

By exercising the rights of moving pension savings, consumers can benefit in a better overview of their pension savings. Unfortunately, movement of pension savings are often subject to high fees and taxation which makes it less attractive. To change this, the Swedish Ministry of Finance has presented a series of law amending propositions to improve for consumers to exercise their rights to move pension savings.

SCR | Solvency II

Differences in the implementation of the countercyclical capital buffer policy

The countercyclical capital buffer (CCyB) – a part of Basel III – has the purpose of ensuring that banking capital requirements consider the macro-financial environment, giving protection during periods of excess aggregate credit growth. In a recent document from the Basel Committee on Banking Supervision, the committee points out that even though the CCyB policy contains some key requirements, jurisdictions have had and still have a significant flexibility in designing their national CCyB policy framework.

Basel | Regulations

The Modelling of Macroprudential Policies

The usage of macroprudential policies has become an important tool in the development of financial regulations and the mitigation of procyclicality of the financial system. Although the usage of macroprudential tools is considered a positive development, the principles behind its strategies is still being explored.

Regulations | Modelling

The Past, Present and Future of Central Bank Balance Sheets

In a recent interesting post on the Bank Underground a blog where Bank of England staff can share their views James Barker, David Bholat and Ryland Thomas write about the past, present and future of central bank balance sheets.

Risk | Regulations

New capital requirements for Swedish occupational pension funds

As is known, the European Commission excluded new capital requirements within the new regulation IORP II. However, Sweden’s financial supervisory authority, Finansinspektionen (FI), have been imposed to leave a suggestion regarding national capital requirements for occupational pension funds – beyond the mandatory requirements of IORP II.

Regulations

Banking Regulation, the Current and Future Situation

The Bank of International Settlements (BIS) has in a speech by Chairman Fernando Restoy at the CIRSF annual international conference in Lisbon addressed the present and future state of the regulation and supervision after the financial crisis of 2009. In this post we highlight the parts we found the most interesting.

Regulations

ESMA has published a Consultation Paper on the Money Market Funds Regulation, Part II

ESMA has published a Consultation Paper on the Money Market Funds Regulation (MMFR). The paper represents a first stage in the development of technical advice in regards to liquidity requirements and credit quality requirements for assets received through reverse repurchase agreements, technical advice on credit quality assessment, technical standards for reporting and guidelines on the stress tests performed within the MMFR framework.

Risk | Regulations

ESMA has published a Consultation Paper on the Money Market Funds Regulation, Part I

ESMA has published a Consultation Paper on the Money Market Funds Regulation (MMFR). The paper represents a first stage in the development of technical advice in regards to liquidity requirements and credit quality requirements for assets received through reverse repurchase agreements, technical advice on credit quality assessment, technical standards for reporting and guidelines on the stress tests performed within the MMFR framework.

Risk | Regulations

The volatility components and their effect on the macroeconomy.

It is well known that the behaviour of volatility can be characterised by two components, one slowly varying long run component and a strongly mean-reverting short run component, but how do they differ in their impact on the macroeconomy?

Modelling | Volatility

What to Expect from the Upcoming Solvency II Review

In a letter from the DG FISMA of In the European Commission dated 18 July 2016, the Commission asks EIOPA for technical input to a review of the Solvency II regulatory framework focusing on three areas.

Solvency II | Look-Through

KIIDs SRRI and the Swedish mutual funds market

One of the key components of the KIID is the Synthetic Risk and Reward Indicator which is used in the process of identifying funds' risk and reward disclosure. Whilst its relationship to risk is trivial, its connection to return might not be as trivial. In order to study this relationship, we have analysed return data over 5 years from a large number of Swedish mutual funds with varying SRRI levels.

Regulations | Volatility

EIOPA proposes amendments to the adopted Solvency II Technical Standards on Reporting and Disclosure

EIOPA has proposed a number of amendments to the adopted Solvency II Technical Standards on Reporting and Disclosure. The amendments are divided into type 1 and type 2 where type 1 is amending provisions and type 2 are corrective provisions. Needless to say the type 1 amendments may have significant impact on the reporting done by the regulated insurance companies.

Solvency II | Regulations

FinTech and the Regulatory Road ahead

In a recent speech by the Managing Director of the Monetary Authority of Singapore (MAS), Mr Ravi Menon discusses, among other topics, his view on FinTech and the regulatory future the industry faces. Below we summarize some of the key points Mr Menon presented.

FinTech | RegTech | Regulations

One Year of Solvency II

With the first round of annual results and disclosure under Solvency II closing in, Bank of England's Executive Director of Insurance Supervision, David Rule, highlighted in a recent speech how Solvency II has affected the insurance industry one year on since its inception.

Solvency II | SCR | Risk

Dynamic Policyholder and Management Actions

Insurance companies need to survey Dynamic Policyholder Behaviour and model Management Action plans in order to face risk exposure arising from mass changes in the insured behaviour.

Management Action | Insurance

Valuation Frameworks

We present some technical concepts regarding different valuation structures both from a financial point of view and a mathematical perspective.

Risk | Model

Libor Market Model

In this note, we explain Libor Market Model for interest rate. Furthermore, we go through the calibration of LMM conforming to Solvency II.

LMM | Model

Solvency II market risk - 3 documents to read

If you need to quickly gain an understanding of the capital requirement for market risk under Solvency II, look no further. These are the three documents you need to read.

Dependence | Solvency II | SCR

Contingent Convertible Bonds (CoCos)

Since the previous big economic crisis around 2008, regulators have pushed for banks to fund their activities with less debt and more loss-absorbing capital.

Risk
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