The regulatory landscape has evolved significantly over the last couple of years. Lenders have been forced to start thinking about how they can increase efficiency and transparency around IFRS 9 reporting whilst keeping costs at bay.
In 2020 we published a blog The Rise of IFRS 9 Managed Services, which highlights the challenges many firms face in their IFRS 9 reporting cycle and how a managed service can help to remove pain points. Ian Wilson, Deloitte Partner and industry expert, explains that “the cost of managing risk has increased significantly in the last decade and the banking landscape is now more competitive than ever with exciting new digitally based products and services providers able to enter the marketplace with few barriers.” Making use of a managed service operating model provides lenders with the opportunity to benefit from economies of scale and reduce the overall spend on reporting processes, whilst remaining in control of the model inputs and results.
One new market entrant is Recognise Bank. Despite the challenges presented by COVID-19, Recognise Bank was awarded a restricted banking license by UK regulators in November 2020. They specialise in servicing the UK SME market, offering property financing, finance for business owners and professional firms.
They acknowledged the challenges of IFRS 9 reporting early; and especially how these challenges can be exacerbated for new lenders due to data constraints. To help them overcome these issues, they selected Deloitte for a 5-year IFRS 9 managed service contract. The service extends to both reporting and stress testing runs and includes quarterly execution of expected credit loss calculations, production of reporting packs, analysis and results commentary. We also supported Recognise Bank with their IFRS 9 model design and implementation prior to setting up the managed service capability, working closely with them to address issues around data limitations.
Recognise Bank’s CFO David Jenkins highlights how “the relationship with Deloitte has provided Recognise with access to highly skilled experts and modellers. This would have been costly both in time and resource to adequately set up for when we required the output. The ability to rely on a larger team through Deloitte expedited the planning and operationalisation of our IFRS 9 modelling and made benchmarking and calibration of the model easier”.
CRO Patrick Ferguson says that “It has enabled us to design and implement an IFRS 9 model in a fraction of the time it would have taken in-house, whilst enjoying the benefits of best practice in model design, model implementation, and data management. Importantly, Recognise has remained in control of the model, and in particular the forecast and scenarios we run it against.”
Through collaborating with Deloitte, Recognise Bank now has an efficient IFRS 9 modelling and reporting process. This means their focus can shift to the interpretation of results and shaping front office strategies, such as lending and pricing. It also allows them to secure a competitive advantage in terms of managing cost and operational risk, as well as using analytical insight to support sustainable customer growth within risk appetite.
The relationship with Deloitte has provided Recognise with access to highly skilled experts and modellers. This would have been costly both in time and resource to adequately set up for when we required the output. The ability to rely on a larger team through Deloitte expedited the planning and operationalisation of our IFRS 9 modelling and made benchmarking and calibration of the model easier.