The dust may have settled from the financial crisis, but banks are going to be dealing for years with the consequences in terms stricter compliance and risk management requirements. Accordingly, this week Oracle announced an expansion of its Oracle Financial Services Enterprise Risk Management suite to include a new model risk management solution, as well as enhanced offerings for regulatory capital management and credit risk management. Additionally, the Redwood Shores, Calif.-based vendor introduced Oracle Financial Services Foreign Account Tax Compliance Act Management to help financial institutions prepare for Foreign Account Tax Compliance Act (FATCA) provisions that will begin to go into effect in 2014.
Under FATCA, all financial institutions (U.S.-domestic and foreign) must classify account holders as either U.S. or non-U.S. based and report directly to the United States Internal Revenue Service specific information about financial accounts held by U.S. taxpayers or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. It will require organizations to analyze existing customers, update customer information and onboarding processes and expand reporting capabilities, Oracle explains. "This is a difficult compliance task to implement on a global basis," according to S. Ramakrishnan, group vice president and general manager, Oracle Financial Services Analytical Applications. Once FATCA takes effect, he adds, "Life will never be the same again."
[Oracle's S. Ramakrishnan offers 10 Best Practices for Jumpstarting FATCA Compliance ]
Oracle's solution for account holder onboarding and categorization, due diligence and reporting has been developed to help financial institutions streamline processes for immediate as well as long-term compliance with FATCA, while minimizing impact to their existing information technology infrastructure, according to an Oracle press release. The solution consolidates FATCA-specific data in a single repository to provide an enterprise-wide view of customers and enable banks to centrally manage the compliance process. Using the platform, financial institutions can add new accounts and manage current accounts, collecting information required under FATCA. Pre-configured and validated account categorization, indicia and existing account review rules, as well as audit trail capabilities and reporting templates are intended to facilitate compliance processes. The solution integrates with existing Oracle and third-party applications using standard batch interfaces, helping to accelerate time to deployment and optimize a bank's existing technology investment, and is built on the Oracle Financial Services Analytical Applications Infrastructure, Oracle reports.
The complex demands around stress testing, along with emerging concerns regarding the concept of model risk and model governance were the considerations behind the expansion of Oracle Financial Services Enterprise Risk Management suite to include a new model risk management solution, as well as enhanced offerings for regulatory capital management and credit risk management.
Stress testing involves reliance on an array of models, but "there is concern about the governance of those models. It's the 'risk of managing credit risk,'" notes Ramakrishnan. "Since everything is depending on the reliability of those models, it's a big issue. Model risk management requires you to bring all the models into one space and imposes governance and organizational discipline."
Oracle Financial Services Model Risk Management provides a common environment to manage all risks associated with the use of models, including risks arising due to poor data quality, incorrect or inappropriate use, design flaws, incorrect implementation and unauthorized access. The solution delivers a single repository for all model information across the enterprise, includes pre-built dashboards to jump start benefits and provides drill-down capabilities for in-depth insight. The application provides a common environment to manage risks associated with the use of models including risks arising due to data quality, incorrect or inappropriate usage, design flaws, incorrect implementation and unauthorized access.
Oracle Financial Services Credit Risk Management is designed to provide a single, consistent view of portfolio credit risk across an organization (including product types, lines of business, geographies and legal entities) by combining results from multiple sources (capital adequacy systems, modeling applications, trading systems and external data). The solution includes components for wholesale and retail credit risk, as well as a counterparty credit risk module that provides analysis of credit risk on derivative exposures.
Version 6 of Oracle Financial Services Basel Regulatory Capital includes functionality to address Basel III leverage ratio, capital adequacy and capital buffers. Enhancements include new/modified rules for computation of credit valuation adjustment (CVA) capital charge, re-securitization charges, minority interests, deferred tax assets (DTAs) and revised criteria for available capital.