Tag Archives: Tracking

Risk & Compliance More Models, More Regulations, More at Stake


To some degree, we’re living in a world where we are cursed with our own success. Financial institutions have seen tremendous benefits from analytics, and as a result, they are using predictive models on an increasingly broader scale, to measure capital reserve requirements and manage complex customer decisions. But as my rap doppelganger would say: “More Models, More Problems.” The greater complexity and number of predictive models in use makes it even more difficult to track and manage model performance, not to mention comply with regulatory requirements. Since the financial crisis, banking regulators have increased their scrutiny of how institutions use predictive analytics. These days, regulators are not only concerned with the safety and soundness of the analytics themselves, in terms of how the models are built and whether they are still validating. Regulators are also focused on the impact of the decisions—that is, who gets a particular decision and... [Read More]

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Customer Engagement Join Us For FICO World 2014


Attracting, serving and protecting customers is getting tougher, so how are companies using predictive analytics to out-maneuver competitors and win customer loyalty? Join us at FICO World 2014 to discover answers from experts and network with your peers. Registration is now open for the conference, which will be held November 11-14 in San Diego, California.

FICO World has become the leading global conference on analytics-powered customer engagement strategies. This year’s theme, “The New Customer Imperative,” stems from the convergence of social, mobile and cloud, which is evolving customer behaviors and expectations, revolutionizing business and society, disrupting old business models, and creating new leaders. We’ll explore this theme through a number of sessions, speakers and events, including:

100+ presentations on analytic innovation, credit scoring, customer growth and retention, customer originations, debt management, fraud and security, mortgage lending, regulatory compliance, and small business lending.

Keynote presenters Theresa Payton,...

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Risk & Compliance Avoid “Garbage In, Garbage Out” with Your MI Packages


Reporting on the results of credit decision strategies is a vital function – but it’s often given less thought than other components of risk management. With the multitude of data variables available, selecting the key performance indicators relevant to the decision being made will be essential in making sure your management information packages deliver what is needed to the right people. Leading organisations create concise MI packages targeted to a specific audience. Here are a few hints and tips: Along with defining clear objectives when designing a new strategy also determine the MI required to report on the performance against objectives. Make use of the RAG approach (red, amber, green) to clearly indicate results against target. Amber can be calculated based on a % tolerance to the target. This approach is clear and easy to understand. Explore all data sources to optimize availability. Be aware of differing data definitions across locations. One of our clients greatly improved their data availability and hence their decisioning capabilities by...

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Risk & Compliance Ace Your Next Regulatory Exam


Back in school, cramming for an exam may have been acceptable (although stressful). But it’s never the best option for lenders preparing for their next regulatory “exam” on model risk management. Fortunately, there’s no need to cram for an audit if you adopt good model management practices from the get-go. Your preparation must begin well ahead of an audit, a point made clear by the 2011 Supervisory Guidance on Model Risk Management issued by the US Office of the Comptroller of Currency (OCC) and similar guidance in the Federal Reserve’s SR 11-7. These guidelines require sound and robust processes for model development, validation, implementation, use and governance. This has always been good policy, but in the regulatory climate following the post-financial meltdown, it becomes even more critical. How can you make sure you’re prepared? Here are a few tips: Understand the scoring models you use, both those developed in-house as well as those from third-party vendors. The guidelines state that bankers must demonstrate a clear understanding of the...

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Risk & Compliance Credit Card and Personal Loan Delinquencies Pull Down Russian Credit Health Index


Q2 data from FICO and the National Bureau of Credit Histories (NBKI), Russia’s leading credit bureau, shows that the rise in credit delinquencies is still continuing — but only on some products. Overall, Russian borrowers’ delinquent credit repayments rose slightly in April 2013, continuing a steady climb that started more than a year ago. The country’s FICO® Credit Health Index — which measures the percentage of loans and cards that are delinquent by 60 days or more — dropped one point from last quarter, to 108 points.   All regions but one have shown a drop in credit health since January of last year, but the same can’t be said of credit products. While delinquencies rose on unsecured loans and credit cards in the last quarter, late payments on mortgages and auto loans are falling. As my colleague Evgeni Shtemanetyan points out, we’re only seeing small increases in delinquency, but the trend isn’t good. Personal loans and credit cards are at the bottom of Russian borrowers’ payment hierarchy, which means they need extra scrutiny...


Risk & Compliance Regulations Amplify Demands on Model Management


Since the global recession, regulators worldwide have become increasingly concerned about the soundness of decision making and capital adequacy within financial services. As a result, they are taking an even closer look at how financial institutions manage risk and use scoring models.  To address this greater regulatory scrutiny of model risk management, financial institutions face many challenges, among them: Clear guidance. While the Fed/OCC and Basel regulators have issued guidelines on what they expect, they are often just that—guidelines. The onus falls on financial institutions to develop a rigorous model management framework to satisfy audit requirements. More models. Predictive models are being used on an increasingly broader scale—often in the thousands for large lenders. This makes it difficult to manage and track models, and determine whether they are still performing well. It's also a struggle to provide required documentation and administration. Transparency. Models are growing in both number and complexity, but they must...

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Risk & Compliance Best Practices for Modeling Regulations


Financial institutions have had a difficult time adapting to the latest regulatory guidance regarding model validation and management. But making the right improvements can also translate into better analytic performance and risk management. To both comply and compete, it's critical to build an organizational policy for comprehensive model and credit policy management. This framework should include the following tried-and-true practices: Have clearly stated credit policies; review these regularly. We recommend reviewing these every six months since they have a direct impact on your bottom line. In the US, the Fed and OCC require a review of policies at least annually. Prepare a suitable data sample. Regulators require you demonstrate your model validation sampling techniques are complete, responsible and relevant, since incorrect or inaccurate sampling can impact model performance.  Ensure model segmentation transparency. In general, you’ll need to clearly document how you segmented subpopulations and how this supports business...

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Risk & Compliance UK Cards Data Suggests Action Items for Issuers


Today we released new data on UK card trends, and if you read between the lines you can see some opportunities for card issuers. As with the data last week on static delinquencies, this reporting comes from the team of consultants that works with UK card issuers using FICO TRIAD Customer Manager, the world’s leading credit account management system. Looking at November 2012 data, we find that 33% of credit limits are unused. The unused credit is slightly lower than 2011, when the figure stood at 34%. In 2008, before issuers began reducing open credit limits to reduce risk exposure, the figure stood at 39%. That’s still a lot of open-to-buy credit — more than £50 billion — that card issuers are holding capital reserves against. Every issuer should examine whether it’s the right amount on a customer-level basis. And some of this available credit may be due to inactive cardholders — do you need this credit to be there? At the very least, make sure you have the right address for these cardholders before sending them a reissued card, to reduce your...

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Risk & Compliance What Are You Doing About Static Delinquencies?


Our team in the UK has just run some reports indicating that, at least among the UK high-street banks, static delinquency levels are running high. Static delinquency occurs when a consumer who is, say, 1 cycle delinquent makes the minimum payment, thus rolling over the delinquent balance to the next month but staying at 1 cycle delinquent. In our latest reporting from the FICO Benchmark Reporting Service in the UK, we found the following in a review of several high-street banks’ card portfolios: There are large percentages sticking at these levels of delinquency, with high average balances. The accounts are demonstrating some ability to pay, as they are meeting the minimum payment each month.  (Some of the banks studied have payment plan accounts, which can inflate the results, but these banks’ accounts are not always at the top end of the static delinquency report.) FICO reports this information to encourage clients to segment these accounts and apply special treatment.  Targeting these accounts can have a noticeable positive impact on...

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Customer Engagement Join Us For FICO World 2013


How are companies using Big Data analytics to understand and collaborate with today’s connected consumer? Join us at FICO World 2013 to discover answers from experts and network with your banking peers. Registration is now open for the conference, which will be held April 30-May 3 in Miami. FICO World has become the leading international conference on analytic strategies. This year, we have a packed agenda with more than 80 presentations from 70 banks and retailers on fraud management, analytic innovation, risk management, collections and improving the customer experience (view a list of sessions). Attendees will also hear from keynote presenter Kenneth Cukier, data editor for The Economist and co-author of a new book on Big Data. Learn more or register for FICO World 2013.

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