How to get set for CECL In my last blog post, I started to outline my “10 Requirements for an Effective CECL Software Solution,” where I focused on three requirements your organization needs to do to get ready for CECL implementation. This post will address four requirements for getting set for CECL, i.e. what capabilities your solution must have to provide a stable platform for CECL execution and analysis. 4) How to get set for CECL – Seamless process orchestration A robust CECL software solution will orchestrate all end-to-end expected credit loss (ECL) calculations from data input to component model calculations to final reporting and detailed outputs. It will automate processes wherever possible but will also allow manual intervention where required to incorporate management overrides. This orchestration will occur “behind the scenes” but the effects still need to be transparent to the user. All inputs, models, calculations, parameters and key outputs... [Read More]
Leader in CECL, FICO says it can ‘deliver a competitive business advantage’ FICO has been recognized as a “Category Leader” by Chartis Research in its report on CECL (Current Expected Credit Loss) technology solutions. The May 2018 report from Chartis compares the CECL solutions of 17 technology vendors, based on both ‘market potential’ and ‘completeness of offering’. Read our release on the report. Leader in CECL: Chartis FinTech Quadrant™ Chartis explains in the report, CECL Technology Solutions 2018, that because most financial institutions in the US outsource almost all of their systems, they won’t be ready to comply until vendors are ready with solutions that match their technology and process requirements. Chartis also observes that vendors with a SaaS and data focus are best placed to deliver the “ideal” CECL offering: a flexible solution with support for core business operations. “Our position in the Chartis FinTech Quadrant for CECL technology solutions... [Read More]
How do you get ready for CECL? In my last blog post, CECL for Auto Finance – Where Do I Start? I promised to start outlining “10 Requirements for an Effective CECL Software Solution”. These are tips to keep in mind whether you plan to “build” or “buy” a solution. To keep things digestible I’ll spread these out over the next three posts under three headings: Ready – What does your organization need to do to prepare for CECL implementation? Set – What capabilities does your solution need to have to provide a stable platform? Go! – What should your software actually do to help you manage your portfolio under CECL once you have implemented it? Ready? Let’s find out. 1) How do you get ready for CECL – Data readiness The best CECL software solutions will help to manage the standard’s vastly expanded data requirements, but it is up to... [Read More]
Countdown to Competitive Advantage If you are working in auto finance, you are no doubt aware that new accounting rules are being introduced to improve the forward-looking estimate of expected credit losses on loans and leases. CECL, or the Current Expected Credit Loss model, has been designed to ensure earlier recognition of credit losses to do all we can to avoid a repeat of the GFC experience. Having a canary in the coalmine is something we should all embrace. The main challenge with CECL is that it will require higher levels of capital to be kept in reserve and lead to changes in lending practices and portfolio and product management. It will also require a significant amount of work to meet the implementation deadline of 15 December 2019, which is now less than 21 months away. Based on our experience with global clients working to comply with IFRS 9, this... [Read More]
IFRS 9 changes the accounting recognition of loan impairment from an “incurred” to an “expected” loss basis, requiring new predictive models that bring the worlds of accounting and credit risk modelling ever closer together.
Whenever there’s a major change in standards looming, companies subject to it understandably go into heads-down mode, focusing on what they need to do to become compliant. Often, there’s an enormous challenge just getting to the start line—the point where the change is required standard practice. For help with reaching the starting line for CECL, the new current expected credit loss impairment model in the US, check out FICO’s just-published CECL Hot Topics Q&A. My colleague Lynda Woodward and I answer questions such as: What is the biggest difference in the change from incurred loss to expected loss? What if we don’t have sufficient data to estimate lifetime losses? There’s a lot of talk about increased volatility in allowance estimates under both CECL and IFRS 9. What are the main causes? Are there some hidden implications of CECL for customer experience and relationship building that I should be considering early... [Read More]
The clock is ticking on IFRS 9 compliance. Preparing for Day 1 IFRS 9 impacts before models are fully built, tested and validated is a bit like preparing for a scheduled car crash: You know the event is going to happen and you know it will be expensive and painful, but you don’t yet know the exact amount of damage. It is tempting to seek comfort in averages from industry benchmarks or surveys. But just as you would never apply the brakes of your car during heavy rain based on the average stopping distance of an average car in average weather conditions, neither should you plan for your business’s IFRS 9 impacts based on average industry impacts alone. Don’t Go by Published Numbers A few widely published, well-intended surveys have attempted to prepare affected organisations for this event by providing estimated ranges and averages in respect of key impact measures.... [Read More]
