Financial Crime World

Title: Bhutan’s Largest Bank Achieves IFRS 9 Compliance with CARE Risk’s Financial Regulation Solutions

Category: Business

Date: March 10, 2023

Bhutan’s largest bank, a pioneer in the financial sector, has recently adopted CARE Risk’s Enterprise Credit Risk (ECL) and Financial Reporting Application (FRA) to comply with the International Financial Reporting Standards (IFRS) 9 and modernize their financial reporting infrastructure.

Profile

This Bhutanese financial institution opted for automation and increased operational efficiency and productivity by becoming one of the first in the country to implement IFRS 9. In addition, the bank aimed to centralize data analysis.

Objective

To meet IFRS 9 reporting requirements and modernize financial reporting, the bank sought a solution to:

  1. Tackle the uncertainties surrounding the new regulation
  2. Address challenges in data quality and data migration

Problem Statements

  • IFRS 9 uncertainty: As a trailblazer in implementing the new guideline, the bank confronted numerous computational uncertainties and difficulties in determining appropriate models and required data.
  • Data fragmentation: A banking system migration during implementation led to challenges in ensuring data quality and combining data from two distinct sources.
  • Complex statistical computations: Complications in PD (Probability of Default) and LGD (Loss Given Default) calculations, requiring a substantial amount of historical data.
  • GL balance reconciliation: The need to reconcile GL balances with transaction balances, ensuring consistency, and generating accurate financial statements.
  • Auditor concurrence: Ensuring the concurrence of external auditors with the computations.

Solutions

CARE Risk provided the following solutions to help the Bhutanese bank tackle its challenges and achieve regulatory compliance:

  1. Data validation: A robust data validation engine acted as a single data warehouse, enabling the bank to sanitize historical data, addressing availability, computation, and reconciliation issues.
  2. Best practices models: A system with globally accepted best practices models was integrated to help the bank comply with reporting requirements in a timely manner.
  3. Automation: The entire computation process was automated with a trigger-based approach, improving overall efficiency and accuracy.
  4. Historical data storage: The system facilitates historical data storage required for PD & LGD computation and offers manual upload features for unavailable data from legacy systems.
  5. Audit trail and authorizations: An efficient user audit trail, granular controls, workflow, authorization, and hierarchy approvals were mapped according to the bank’s policies, simplifying the process of obtaining auditor concurrence.
  6. Reporting engine: A customizable report engine that can be configured by users, generating risk-based reports with drill-down features down to transaction level.

Benefits

Bhutan’s largest bank successfully became the first financial institution in the country to comply with IFRS reporting norms and generate IFRS financial statements. By implementing CARE Risk’s solutions, the bank:

  • Enhanced accountability, transparency, and integrity
  • Streamlined its reporting infrastructure
  • Met the challenges surrounding IFRS 9 implementation