Quantifi, a provider of analytics, trading and risk management technology for the global capital markets has announced the preliminary findings of its counterparty credit risk survey, which shows that all respondents have or plan to implement major changes in their counterparty risk systems but cite data management and integration as significant challenges.
The survey was conducted at the Global Derivatives and Risk Management conference in Paris and surveyed a cross section of financial firms to gain insight into the various approaches and timing in implementing counterparty risk management processes.
All respondents have or plan to implement major changes in their counterparty risk systems with 41% of respondents planning to complete major changes in 2012 or beyond.
Regulatory and market changes are driving banks to overhaul how they calculate and manage counterparty credit risk, says Rohan Douglas, CEO of Quantifi. The standard is being set by the largest global banks which now actively manage counterparty risk, calculate sensitivities, and price CVA for new trades using integrated solutions based on netting and collateral agreements. Given the portfolio level scope and the analytical complexity, existing technology infrastructures have constrained many banks from achieving best practices.
Nearly one out of three firms are currently implementing or evaluating vendor counterparty risk and CVA systems while the largest challenge within existing counterparty risk systems is data management and integration say 64% of repsondents. The next largest challenge is the calculation of CVA sensitivities.
There isnt necessarily a one size fits all approach to counterparty risk management due to the unique aspects of banks respective portfolios and supporting systems. Many firms are choosing vendor systems that already embed industry best practices and offer a faster and more cost-effective solution, says David Kelly, Head of Credit Products, Quantifi.
About 27% of firms actively manage and hedge CVA 59% of firms use exposure limits and 50% use counterparty selection as their primary method for counterparty credit risk management.
While 64% of respondents calculate CVA on new trades and 50% of these use an integrated calculator with netting and collateral.
(LB)