SAS CRMS Laboratory Environment in the Basel II project within Unicredit Group

Transcription

1 SAS CRMS Laboratory Environment in the Basel II project within Unicredit Group Umberto Fossati Chief of Credit and Mgmt Systems Unicredit Global Information Services Lucia Ghezzi Head of Credit Risk Technologies Unit Unicredit Group Stockolm, May 2007

2 Agenda Overview of Basel II project within Unicredit Group Italian Regulator s Requirements Basel II laboratory environment Integration project of SAS CRMS suite with existing infrastructure Final findings 2

3 The new Unicredit Group The new combined Unicredit Group was born in November 2005 after the merger between the former Unicredito Italiano Group and HVB-BACA Group and includes about 230 legal entities located in 19 countries Within the new combined Group there are 3 IT Factories which manage the IT services required by all the legal entities Unicredit Global Information Services (UGIS) provides the Italian legal entities, Pekao Bank (Poland) and Zinvostenska Bank (Czech Republic) 3 Countries of Unicredit Group presence

4 Objectives of Basel II Group-wide project After the merger, a group-wide Basel II project started to reach the following: Re-organize all the on-going Basel II projects running in each legal entity in a unique and better coordinated program Develop a unique group-wide Basel II program to define: Basel II level approach Required resources Master plan to reach the compliance Develop a unique communication stream with all National Regulators Define the Basel II target architecture on IT side 4

5 Agenda Overview of Basel II project within Unicredit Group Italian Regulator s Requirements Basel II laboratory environment Integration project of SAS CRMS suite with existing infrastructure Final findings 5

6 Italian Regulator s requirements IRB approach Requirement Detail Three levels of controls on the Internal Rating: Titolo I Titolo II Titolo III Titolo IV Titolo V Pillar 1 Pillar 2 Pillar 3 Credit Risk Organizational Requirements (Section III) Model documentation sheet (Scheda Modello Annex D) First Level: rating assignment control Second Level: validation Process Model IT and Data Quality Third Level: internal audit 1 14 sections Detailed description of all core aspects related to: Target portfolio Rating model definition path Data quality and data storage IT and Data Quality (Annex A) Data quality standards & levels Consistency between development and production environment Replicability of rating Integration among systems 6

7 Unicredit addressing of organizational requirements on internal rating controls First Level Control Validation Framework Methodological Validation Second Level Control Process Validation Third Level Control IT Validation 7

8 IT Validation Framework in Unicredit Main Areas IT Management Key Principles - IT Governance - IT Process - IT Application architecture - IT Technology infrastructure - IT Security - IT Resource Management - IT Knowledge Management - IT Third part management (Contract Management) Data and Rating Model Management - Data integration and aggregation - Data collection and storing - Model collection and storing - Repeatability of rating calculation Data Quality Management Systems - Quality data policy - Organization structure & review - Execution of Control - Data Tracking and Logging focused on quality controls The IT Validation Framework defines the key principles to be checked in order to validate the IT systems supporting IRB models life cycle 8

9 Model Sheet Banca d Italia Model Sheet structure describing a rating model: 1. Model Description 2. Portfolio Description 3. Default Definition 4. Characteristics of Estimation Sample 5. Input data 6. Factors selection process 7. Rating assignment with judgemental approach 8. Statistic model estimation 9. Rating classes construction and rules to assign counterparties to rating class 10. Calculation of PD associated to rating classes (calibration) 11. Rating changes based on analyst evaluation (override) 12. Dynamic properties of ratings and PDs 13. Data Storage 14. Rating and PD usage 9

10 Agenda Overview of Basel II project within Unicredit Group Italian Regulator s Requirements Basel II laboratory environment Integration project of SAS CRMS suite with existing infrastructure Final findings 10

11 Laboratory Environment components The Basel II Laboratory Environment is an application used to develop/validate risk parameter models and it is composed by: - Component - - Main functionality and objectives - Data Availability/Usage of historical data in order to: Develop risk indicator models (default rates, Credit Conversion factors, recovery rates.) and risk parameter models (PD, EAD, LGD e M) Calibrate/validate IRB models already in place to verify their performance Perform stress-testing and back-testing Functionalities Use of: Functionalities to perform data cleaning and the definition of samples Statistical functionalities Functionalities to generate (semi) automatic documentation Processes Implementation of a workflow to: Define standards and rules to use the laboratory environment Define the validation phases of each IRB model and each Bank Guarantee high-level IT security 11

12 Previous situation In the first half of 2006 an assessment on the current Basel II laboratory environment functionalities has been conducted with regard to the Italian legal entities. The assessment, both functional and technical, has highlighted some enhancements that later have been spotted also by Bank of Italy during the pre-validation visit in June Functionality - - Description - - Current Lab. Env - - Gap identified - 1. Customization and consequently, bank independence for the model development 2. Data feeding 3. Data sampling and sample handling 4. Exhaustiveness of the stat utilities of the suite Possibility for each L.E. to customize the product to its own requirements even using (as a start) standard\prebuild modules Automatic data feeding from various data sources using different formats Possibility for users to build several data samples and share them with other users Availability of several stat utilities for development of estimation models Absence of pre-build modules No different file formats can be loaded automatically (manual file load performed by UGIS as per users request) No stat functions/utilities available in the solution 5. Support for the preparation of documentation Possibility to update automatically the documentation on model development Documentation delivery depends on the policy rules and adopted standard 6. Model Versioning 7. Sample\data Versioning 8. Security and Controls Possibility to manage model versioning and flow diagrams Possibility to manage input\sample data versioning Possibility to control developments on build code and set security rules in order to ensure data back up Versioning is ensured by the standard UGIS PVCS tool, which is not integrated Sample Versioning is not available (SW versioning for the sample extraction is available as the security criteria ensure the source data integrity) Information Security is covered by UGIS 12

13 The decision on SAS CRMS suite In August 2006, it was decided to buy the Credit Risk Management Solution suite in order to allow the Italian Legal Entities to develop risk parameters models in a more structured laboratory environment - Main functionalities - process automation that supports the model deployment in production complete auditability of the rating system through the identification of the scoring model with a unique identification code automatic reporting for the monitoring of the model predictive performance alert system for the analysts in case model predictive indicators overcome significance thresholds back testing reporting on credit data for the analysts SAS suite CRMS actually bought in UGIS 13

14 Agenda Overview of Basel II project within Unicredit Group Italian Regulator s Requirements Basel II Laboratory Environment Integration project of SAS CRMS suite with existing infrastructure Final findings 14

15 Integration project of SAS CRMS with the existing infrastructure The integration of SAS has been performed by UGIS under some guidelines: SAS CRMS had to close all the gap functionalities previously identified, had to support the development/review of IRB models performed by all the Italian legal entities (Holding included) with regards both to Group-wide models (i.e. Sovereign, Banks, Multinationals, Insurance ) and local models (e.g. RIC, RISB, RIP..) The system integration activities should not interrupt users development of risk parameters models and therefore it should not interfere with the achievement of the Basel II compliance in 2008: all the Italian Legal Entities could continue to use the current laboratory environment until SAS CRMS will be totally integrated in the Basel II Italian architecture The integration of SAS CRMS within the Basel II Italian architecture represents a pilot: an assessment is in progress to evaluate the extension to all the legal entities within the Unicredit Group SAS CRMS laboratory environment should replicate and assure the implementation of UGIS IT Standards previously defined with the users (i.e. environment components, process and security rules, etc.) 15

16 Integration project of SAS CRMS with the existing infrastructure According to UGIS Standards, the laboratory environment should include a development and a validation environment with different security rules (environment components) - Development - - Validation - R= Read only; W= Write only; RW= Read & Write 16

17 Integration project of SAS CRMS with the existing infrastructure and has set a logical path for the stakeholders to be fulfilled (process rules) Model life cycle Player Development Initial Validation IT Deployment Ongoing Monitoring Legal Entity 1. Data extraction request UGIS 2. Data loading Legal Entity 3. Data validation UGIS 4. Lab. Environment definition Legal Entity 5. Model development Legal Entity 6. Model check Legal Entity 7. Model functional analysis UGIS 8. IT implementation Legal Entity 9. User acceptance test UGIS 10. Deployment in production 17

18 Integration project of SAS CRMS with the existing infrastructure Activity Methodology Tool Coverage of Requirements existing models Inclusion Validation Inclusion methodology within SAS CRMS Model Validation Guidelines (BIS WP 14) SAS Model monitoring tool REPLICABILITY DOCUMENTATION new models First Development SAS CRMS usage guide lines: Data management and sample preparation SAS DI Studio REPLICABILITY DOCUMENTATION CONSISTENCY Model Development and estimation 18 SAS Credit Scoring EM

19 Integration project of SAS CRMS with the existing infrastructure Phase Resources 1/10/06 1/11/06 1/12/06 1/01/07 1/02/07 1/03/07 1/04/07 1/05/07 1/06/07 1/07/07 1/08/07 1) Suite CRMS deployment SAS UGIS 2) Users training SAS (UGIS) UCI Holding Legal Entities 3) ETL deployment (per LE) Users requirement analysis Metadata environments definition DataMarts deployment SAS UGIS UCI Holding Legal Entities CRMS lab. available. 4) Suite CRMS Users support per LE SAS UCI Holding Legal Entities 4.1) Inclusion of existing models 1 st phase 2 nd phase 4.2) Development of new models 19

20 Agenda Overview of Basel II project within Unicredit Group Italian Regulator s Requirements Basel II Laboratory Environment Integration project of SAS CRMS suite with existing infrastructure Final findings 20

21 Final findings SAS CRMS suite was deployed in the Italian legal entities of the Unicredit Group as they represent a pilot for the Basel II laboratory environment The system integration project did not interfere with the development of IRB models performed by the business users in order to apply for the IRB approaches in 2008 In the next future, it is expected that the SAS CRMS solution will be deployed in the whole Group as a target application SAS CRMS fully supports users activity in a robust IT environment compliant with local and international regulation 21

22 End of presentation Umberto Fossati Chief of Credit and Mgmt Systems Unicredit Global Information Services Lucia Ghezzi Head of Credit Risk Technologies Unit Unicredit Group Stockolm, May 2007