Lack of collaboration and skills shortage is limiting organisations’ ability to meet IFRS 9 requirements

Published On : 10/15/2016

• Lack of collaboration between teams working on IFRS 9 requirements and skills gap are cited as the biggest challenges to implementing new legislation
• Jaywing’s software solution Horizon, enables lenders to quickly and cost-effectively produce IFRS 9 provisions, while supporting stress testing and ICAAP processes

Risk analytics consultancy Jaywing’s new IFRS 9 Confidence Report reveals that nearly half of lenders (49 per cent) believe an integrated approach is key to helping them meet IFRS 9 requirements.

The deadlines to meet IFRS 9 requirements begin in January 2018. However, it’s recommended that models are developed, validated, implemented and tested by the end of 2016. This is to allow lenders time to perform the necessary corroboration of the provision figures under IFRS 9, by running them in parallel for a period alongside the current IAS 39 provisions.

Challenges to implementing solutions

While an integrated approach to IFRS 9 is key, more than half of organisations (56 per cent) believe the biggest challenge to building IFRS 9 models is the availability of analytical expertise. This was closely followed by the availability of quality data and infrastructure (55 per cent) and timescales associated with developing a compliant solution (50 per cent).

This lack of time and expertise has resulted in four in five organisations recognising a need for outside help, either through the use of outsourced consultancy or using external software solutions, with only one in five businesses (20 per cent) planning to go it alone. Jaywing is already working with eleven lenders in a consultancy capacity and has recently launched an IFRS 9 software solution, Horizon. Horizon uses machine learning from Jaywing’s extensive banking regulation expertise to deal with all aspects of IFRS 9 impairment modelling. It uses feeds of a lenders’ own data and macro-economic data and its model engine combines Probability of Default (PD), Exposure at Default (EAD) and Loss Given Default (LGD) components to calculate life time Expected Credit Losses (ECL).

Confidence by Sector 

The report revealed that banks are taking the lead in their preparedness for IFRS 9 with almost a half of banks (49 per cent) already in the implementation and testing phase. This puts banks firmly ahead of other sectors, with only a third of consumer credit companies (33 per cent) and auto finance businesses (29 per cent) testing at this time, with just 11 weeks to go before the year end. Building societies were found to be the least prepared for IFRS 9 with less than three in 10 (27 per cent) in the testing phase, with the majority of building societies still designing and planning their solution.

“While some lenders are feeling confident about their progress towards IFRS 9, others say they are struggling,” said Ben O’Brien, Managing Director at Jaywing. “The best way for lenders to improve their situation is to learn from what’s working with other organisations. That is why tools like automated modelling software are so beneficial. You can quickly and easily adopt advanced models without significantly impacting on business as usual.”

Confidence by job function

The research found that different job functions are viewing their organisation’s preparedness for IFRS 9 in isolation of other departments, and without full visibility of the overall picture. Over a third of economic teams (36 per cent) expect their organisation to complete their parallel runs before the end of the year, however the majority of compliance (33 per cent) and finance teams (43 per cent) don’t think their organisation’s will be ready to parallel run until Q2 2017, with IT departments (31 per cent) even later at Q3 2017.

This demonstrates a clear disconnect between individual teams and when they expect to complete a parallel run, contributing to a divide between job functions and indicating an overall lack of collaboration. As a result, nearly half of those surveyed (47 per cent) agreed that they would use IFRS 9 compliance as an opportunity to improve the infrastructure within their businesses.

O’Brien concluded, “What we’re seeing is that lenders believe an integrated approach and collaboration between teams is key to success. While significant strides have been made in collaboration, it appears that too often, individual departments are still taking a modular view to task completion in IFRS 9. As well as harmonising the models, the parallel run phase should create greater alignment of IFRS 9 requirements across internal divisions, in support of the organisation’s overarching goals.”

To access the full complimentary report, visit: https://goo.gl/VById5

Wanda Rich

Wanda Rich has been the Editor-in-Chief of Global Banking & Finance Review since 2011, playing a pivotal role in shaping the publication’s content and direction. Under her leadership, the magazine has expanded its global reach and established itself as a trusted source of information and analysis across various financial sectors. She is known for conducting exclusive interviews with industry leaders and oversees the Global Banking & Finance Awards, which recognize innovation and leadership in finance. In addition to Global Banking & Finance Review, Wanda also serves as editor for numerous other platforms, including Asset Digest, Biz Dispatch, Blockchain Tribune, Business Express, Brands Journal, Companies Digest, Economy Standard, Entrepreneur Tribune, Finance Digest, Fintech Herald, Global Islamic Finance Magazine, International Releases, Online World News, Luxury Adviser, Palmbay Herald, Startup Observer, Technology Dispatch, Trading Herald, and Wealth Tribune.