Professional Articles
The big picture: Controlling the NFR Puzzle
By Sonia Dribek-Pfleger, Dr. Lorenz Schendel
While the individual frameworks of Non-Financial-Risks (NFR) are becoming more detailed and comprehensive with increasing regulatory requirements (e.g. DORA), current challenges (pandemic, cyber, AI, geopolitical crises) and increasing team size and decentralisation of risk management activities, the overall view of non-financial risks is increasingly suffering. In this article, we present both pragmatic approaches for initial steps and a long-term target picture for the holistic management of non-financial risks, with the aim of creating consistency between the various NFR data, making the NFR risk profile transparent and achieving efficient risk management by focusing on the material risks.
Regulatory Ambiguity and Credit Risk Requirements for Implementing EU Final Basel III Rules
By Joo-Yung Lee, Jan Schimmel
Last year we discussed the changes to the standardised approach (SA) for calculating risk-weighted assets (RWAs) for credit risk and its implementation challenges. All banks, including banks using the Internal Ratings Based (IRB) Approach will have to calculate the SA either as their main capital calculation or, in the case of ‘IRB banks’, in order to apply the output floor. The rules are now final in the EU with a go live date of 1 January 2025 with full implementation by end-2032 following a phase-in period. Several regulatory interpretation questions have emerged as banks are implementing these changes, some of them driven by larger banks who are focusing on the standardized approach more than they have in the past.
Consistency of interest rate risk management and IFRS hedge accounting through the future DRM model?
By Volker Liermann, Oliver Wulle
The DRM model as the future IFRS portfolio hedge accounting model is intended to resolve the long-standing tension between interest rate risk management at portfolio level and its presentation in the IFRS financial statements and overcome the weaknesses of the still relevant IAS 39 Portfolio Fair Value Hedge. Some risk managers in particular are demanding for the risk management view to be fully incorporated into the IFRS financial statements. The question therefore arises as to the extent to which a complete risk management view is possible or sensible in IFRS financial statements and how the risk management view can be adapted as far as possible in the DRM model.
Quantifying natural risk – challenging, but possible
By Markus Quick, KPMG AG WPG Frankfurt, Dr. Holger Spielberg, Armina Schädle, Tania Jötten
Five years ago, banks were faced with the challenge of measuring climate risks and integrating them into their risk management. Now, biodiversity loss is gaining attention and is joining climate risks on the political and regulatory agenda. Experience from the climate sector provides a valuable basis for all risk management processes. However, biodiversity risks are significantly more complex and extensive, which leads to challenges right from the definition and identification stage. Many institutions have started to assess their portfolios via established data providers such as Exploring Natural Capital Opportunities, Risks and Exposure (ENCORE).
ICT risk management under DORA – integration into ICAAP and ILAAP
By Prof. Dr. Andreas Igl
The introduction of the Digital Operational Resilience Act (DORA) from January 17, 2025 takes the importance of robust ICT risk management to a new level. As part of operational risk, ICT risks are becoming particularly relevant, as their impact not only directly influences operational stability, but also the capital and liquidity planning of banks. Operational risks, including ICT risks, must therefore be systematically identified, assessed and managed as part of the Internal Capital Adequacy Assessment Process (ICAAP) and Internal Liquidity Adequacy Assessment Process (ILAAP). The article highlights approaches for approximating and quantifying ICT risks.
Professional Articles
The big picture: Controlling the NFR Puzzle
By Sonia Dribek-Pfleger, Dr. Lorenz Schendel
While the individual frameworks of Non-Financial-Risks (NFR) are becoming more detailed and comprehensive with increasing regulatory requirements (e.g. DORA), current challenges (pandemic, cyber, AI, geopolitical crises) and increasing team size and decentralisation of risk management activities, the overall view of non-financial risks is increasingly suffering. In this article, we present both pragmatic approaches for initial steps and a long-term target picture for the holistic management of non-financial risks, with the aim of creating consistency between the various NFR data, making the NFR risk profile transparent and achieving efficient risk management by focusing on the material risks.
Regulatory Ambiguity and Credit Risk Requirements for Implementing EU Final Basel III Rules
By Joo-Yung Lee, Jan Schimmel
Last year we discussed the changes to the standardised approach (SA) for calculating risk-weighted assets (RWAs) for credit risk and its implementation challenges. All banks, including banks using the Internal Ratings Based (IRB) Approach will have to calculate the SA either as their main capital calculation or, in the case of ‘IRB banks’, in order to apply the output floor. The rules are now final in the EU with a go live date of 1 January 2025 with full implementation by end-2032 following a phase-in period. Several regulatory interpretation questions have emerged as banks are implementing these changes, some of them driven by larger banks who are focusing on the standardized approach more than they have in the past.
Consistency of interest rate risk management and IFRS hedge accounting through the future DRM model?
By Volker Liermann, Oliver Wulle
The DRM model as the future IFRS portfolio hedge accounting model is intended to resolve the long-standing tension between interest rate risk management at portfolio level and its presentation in the IFRS financial statements and overcome the weaknesses of the still relevant IAS 39 Portfolio Fair Value Hedge. Some risk managers in particular are demanding for the risk management view to be fully incorporated into the IFRS financial statements. The question therefore arises as to the extent to which a complete risk management view is possible or sensible in IFRS financial statements and how the risk management view can be adapted as far as possible in the DRM model.
Quantifying natural risk – challenging, but possible
By Markus Quick, KPMG AG WPG Frankfurt, Dr. Holger Spielberg, Armina Schädle, Tania Jötten
Five years ago, banks were faced with the challenge of measuring climate risks and integrating them into their risk management. Now, biodiversity loss is gaining attention and is joining climate risks on the political and regulatory agenda. Experience from the climate sector provides a valuable basis for all risk management processes. However, biodiversity risks are significantly more complex and extensive, which leads to challenges right from the definition and identification stage. Many institutions have started to assess their portfolios via established data providers such as Exploring Natural Capital Opportunities, Risks and Exposure (ENCORE).
ICT risk management under DORA – integration into ICAAP and ILAAP
By Prof. Dr. Andreas Igl
The introduction of the Digital Operational Resilience Act (DORA) from January 17, 2025 takes the importance of robust ICT risk management to a new level. As part of operational risk, ICT risks are becoming particularly relevant, as their impact not only directly influences operational stability, but also the capital and liquidity planning of banks. Operational risks, including ICT risks, must therefore be systematically identified, assessed and managed as part of the Internal Capital Adequacy Assessment Process (ICAAP) and Internal Liquidity Adequacy Assessment Process (ILAAP). The article highlights approaches for approximating and quantifying ICT risks.
Professional Articles
The big picture: Controlling the NFR Puzzle
By Sonia Dribek-Pfleger, Dr. Lorenz Schendel
While the individual frameworks of Non-Financial-Risks (NFR) are becoming more detailed and comprehensive with increasing regulatory requirements (e.g. DORA), current challenges (pandemic, cyber, AI, geopolitical crises) and increasing team size and decentralisation of risk management activities, the overall view of non-financial risks is increasingly suffering. In this article, we present both pragmatic approaches for initial steps and a long-term target picture for the holistic management of non-financial risks, with the aim of creating consistency between the various NFR data, making the NFR risk profile transparent and achieving efficient risk management by focusing on the material risks.
Regulatory Ambiguity and Credit Risk Requirements for Implementing EU Final Basel III Rules
By Joo-Yung Lee, Jan Schimmel
Last year we discussed the changes to the standardised approach (SA) for calculating risk-weighted assets (RWAs) for credit risk and its implementation challenges. All banks, including banks using the Internal Ratings Based (IRB) Approach will have to calculate the SA either as their main capital calculation or, in the case of ‘IRB banks’, in order to apply the output floor. The rules are now final in the EU with a go live date of 1 January 2025 with full implementation by end-2032 following a phase-in period. Several regulatory interpretation questions have emerged as banks are implementing these changes, some of them driven by larger banks who are focusing on the standardized approach more than they have in the past.
Consistency of interest rate risk management and IFRS hedge accounting through the future DRM model?
By Volker Liermann, Oliver Wulle
The DRM model as the future IFRS portfolio hedge accounting model is intended to resolve the long-standing tension between interest rate risk management at portfolio level and its presentation in the IFRS financial statements and overcome the weaknesses of the still relevant IAS 39 Portfolio Fair Value Hedge. Some risk managers in particular are demanding for the risk management view to be fully incorporated into the IFRS financial statements. The question therefore arises as to the extent to which a complete risk management view is possible or sensible in IFRS financial statements and how the risk management view can be adapted as far as possible in the DRM model.
Quantifying natural risk – challenging, but possible
By Markus Quick, KPMG AG WPG Frankfurt, Dr. Holger Spielberg, Armina Schädle, Tania Jötten
Five years ago, banks were faced with the challenge of measuring climate risks and integrating them into their risk management. Now, biodiversity loss is gaining attention and is joining climate risks on the political and regulatory agenda. Experience from the climate sector provides a valuable basis for all risk management processes. However, biodiversity risks are significantly more complex and extensive, which leads to challenges right from the definition and identification stage. Many institutions have started to assess their portfolios via established data providers such as Exploring Natural Capital Opportunities, Risks and Exposure (ENCORE).
ICT risk management under DORA – integration into ICAAP and ILAAP
By Prof. Dr. Andreas Igl
The introduction of the Digital Operational Resilience Act (DORA) from January 17, 2025 takes the importance of robust ICT risk management to a new level. As part of operational risk, ICT risks are becoming particularly relevant, as their impact not only directly influences operational stability, but also the capital and liquidity planning of banks. Operational risks, including ICT risks, must therefore be systematically identified, assessed and managed as part of the Internal Capital Adequacy Assessment Process (ICAAP) and Internal Liquidity Adequacy Assessment Process (ILAAP). The article highlights approaches for approximating and quantifying ICT risks.