A Big Four Bank Deploys A Comprehensive Solution

A leading global financial institution, recognized as one of the top four banks and considered systematical important, has successfully developed a comprehensive framework to handle foreign exchange (FX) exposure and margin risk. This framework empowers the bank to gain valuable insights, exercise control, closely monitor, and effectively manage the risks associated with FX exposure. To achieve this milestone, the institution implemented the ARO cutting-edge ETL framework, decision matrix, and a robust reporting framework. ARO tool provides the bank with a strategic advantage in navigating the complexities of FX exposure and margin risk management.

Utilizing ARO allowed the bank to swiftly construct the framework within the desired timeframe. Furthermore, ARO's rules-based approach enhanced the efficiency of setting limits and managing risk almost in real time, bolstering the bank's risk management capabilities significantly.

The Client

The client, ranked among the top four banks worldwide, maintains a strong global presence spanning across 35+ countries and assets valued at approximately $1.9 trillion. Recently, it accomplished a significant milestone by successfully implementing a versatile solution on the ARO platform to manage and monitor FX exposure and limits. This adaptable solution equips the client with the necessary tools to navigate the complexities of FX management effectively, further enhancing their operational capabilities in this domain.

The Need to Move Away From Manual Processes

The primary objective was to establish a flexible framework that could cater to future needs while minimizing any potential regulatory risks within a short timespan.

Previously, the business unit relied on a manual process to handle FX exposure and margin risk, involving the creation of reports. However, this approach proved to be ineffective due to several limitations. The reports were generated on a T+1 basis, which resulted in delayed insights and hindered the ability to manage exposure risk in a timely manner. Recognizing the need for improvement, the business unit set out to address these challenges by seeking a solution that would enable multiple risk calculations throughout the day, both on a scheduled and ad-hoc basis. The objective was to obtain a comprehensive and dynamic view of exposure data, allowing for consolidation at various levels and across different timelines (such as Day-over-Day and incremental changes over the day). Additionally, the system needed to offer the flexibility to modify limits and other metadata, facilitating the inclusion of additional dimensions as required. Crucially, the new system aimed to capture all operational and risk limits by currencies, thereby minimizing potential human errors and ensuring a more robust risk management process.

ARO Builds a Comprehensive Exposure and Risk  Framework

In order to effectively address the requirements and ensure comprehensive risk management, the bank made the strategic decision to implement the ARO framework for risk reporting. ARO offered a self-service framework that encompassed several key functionalities:

1. Data Extraction, Transformation, and Loading (ETL): ARO facilitated the seamless integration of data from diverse trading, risk, and position management systems, while also cleansing and enriching the data in the process.
2. Decision Matrix: The framework incorporated a robust decision matrix that enabled the application of exposure limits based on currency and user groups, ensuring effective risk management.
3. Reporting Framework: ARO provided a powerful reporting framework capable of combining the relevant data with the decision matrix, resulting in comprehensive risk reports.
4. Scheduling Framework: The solution included a scheduling framework that automated the generation and distribution of reports on both scheduled and ad-hoc basis, ensuring timely delivery of critical information across various groups.

Business Outcomes: Improved Exposure and Margin Risk Management in Near Real Time

The organization has successfully implemented a comprehensive solution for exposure and risk management, enabling them to achieve several crucial objectives:

• Maintain a continuous understanding of their consolidated exposure across currencies and business units
• Set and monitor limits in real time, supported by appropriate controls
• Consolidate data from multiple systems to establish a reliable single view of risk
• Provide a consolidated risk view to a wide range of users globally
• Foster a greater ability to know, control, and monitor risks, leading to informed decision-making
• Effectively manage financial, regulatory, and reputational risks through enhanced control measures

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