Wholesale Credit Risk Transformation

Arrayo’s team led a large-scale multi-year “Change-the-Bank” transformation program for a global financial institution supporting C-suite client stakeholders in designing and implementing the Wholesale Credit Risk Framework and Target Operating Model across the bank’s First Line and Second Line of Defense functions to strengthen and improve risk management practices. The bank had a vested interest in improving the way it delivers credit risk management and identifies, measures, monitors, mitigates, and reports Wholesale Credit Risk across its businesses and products.

Challenge

The primary objective of this engagement was to modernize and simplify processes and underlying technology to identify, measure, monitor, and report credit risk across the bank’s products, sectors, geographies, regions, and industries that generate Wholesale Lending Credit Risk and Counterparty Credit Risk, in an effort to achieve organizational improvement, process efficiency and technology modernization and improving the overall effectiveness of the internal controls environment within the various functions responsible for management and monitoring of Wholesale Credit Risk.

Delivery

Our team collaborated closely with the client’s Business and Risk organization to design and implement a firm-wide Target Operating Model, instituting the stand-up of a First Line Risk Management function within the Bank’s First Line of Defense, for management and monitoring of credit underwriting processes.

The key components of the execution include:

• Current State Gap Analysis: We performed an end-to-end current state gap analysis across various businesses within the Credit group for identification, monitoring, and management of credit risk practices, in alignment with the regulatory requirements.
• Strategic Roadmap: Our team developed a multi-year transformation program strategic roadmap to deliver value change.
• Target State Operating Model: We formulated a strategic TOM across the First- and Second-Line Defense functions to inform the target state organizational design.
• Technology Modernization: As the Bank was keen to modernize its technology infrastructure to support better credit risk management, it involved continuous improvement to the bank’s technological landscape by identifying gaps and manual processes for streamlining and automation, enhancing their agility and scalability, addressing inefficiencies and manual processes to further reduce operating costs and improve efficiency.
• Strategic Execution: The central focus of the program delivery relied on orchestrating the seamless transition to a dynamic and compliant credit risk framework. This includes detailed documentation of gaps across processes, controls, and technology, a comprehensive implementation plan across the identified gaps, defining and implementing credit risk framework, processes, and controls across business lines, continuous development, and refinement of business and functional requirements, performing capacity assessments of the target state organization and coordinating implementation.
• Process and Controls Design: Our team designed a detailed process workflow across the various processes involved in the Wholesale Lending Credit Risk and Counterparty Credit Risk lifecycle.
• Solution Build: Actively engaged with Risk and Technology partners in the institution of the First Line Risk Management function in the various credit underwriting processes and systems, in line with the bank’s policies and standards.
• Process Improvement: Actively participate in ongoing business, onboarding, and improvement of new products, services, and processes through simplification and process enhancement initiatives.

Value

The milestones and deliverables we achieved include:

• Strategic Roadmap: Development of a multi-year cross-functional transformation program strategic roadmap to deliver value-change outlining different phases of development. testing, execution, and implementation.
• Iterative Project Plan: Documentation of a detailed Project Plan across business lines outlining key milestones, deliverables, and timelines, ensuring that the project remains in alignment with the overall program deadlines.
• Gap Analysis: Crafted a comprehensive gap analysis document across the bank’s Lines of Business encompassing process, controls, and technology gaps.
• Target Operating Model: Development of an end-to-end Target Operating Model and Roles and Responsibilities matrix across Business, Risk, Operations, Legal, and Technology functions, providing a clear vision of the bank’s future state organization in line with the target state.
• Implementation Plan: Documentation of a multi-year strategic implementation plan to address the current state gaps and deficiencies with phased deliverables and milestones.
• Capacity Assessments: Formulation and creation of capacity assessments and staffing needs to implement the new First Line Risk Management function within the Bank.
• Process Flow Documentation: Documentation of end-to-end process flows/maps for various credit underwriting processes including Origination, Underwriting, Collateral Mgmt., Exposure Mgmt., Limit Monitoring and  Mgmt., Counterparty Onboarding, Counterparty Due Diligence, Transaction Monitoring and Mgmt., Counterparty Closeout and Quality Assurance.
• Target State Roles and Responsibilities: Documentation of target state Roles and Responsibilities matrix between Business, Risk, and other functions for credit underwriting management.
• Business and Functional Requirements: Elicitation and ongoing refinement of comprehensive business and functional requirements for technology implementation as it relates to the institution of a First Line Risk Management function within the credit underwriting processes and systems.
• Desk Procedures: Developed comprehensive operating manuals and desk procedures outlining the end-to-end WCR and CCR management process within the bank.
• Controls Design: Designed and implemented new/update of existing for credit risk processes across First Line and Second Line Risk management.
• Process Testing: Documentation of comprehensive test plans and testing artifacts to perform process testing and dry-run activities before go-live.
• Policies and Procedures: Performed ongoing refinement of the underlying credit risk Policies and Procedures, in line with the regulatory requirements.
• Status Reporting: Ongoing status reporting to the Program Sponsor and key stakeholders on the program progress, key risks, issues, and dependencies in line with the program timelines.

Impact

The program that we delivered was defined as one of the most successful transformations in the history of the bank and delivered value in the way the bank delivers credit risk management across a variety of businesses and institutional investors.

• Improved Risk Management: Strengthen risk management for identification, measurement, monitoring, mitigation, and reporting of credit risk.
• Decision-Making: Enhanced decision-making with streamlined processes and underlying technology modernization to aid in real-time business decision-making.
• Regulatory Compliance: Alignment with regulatory requirements through implementation of efficient risk and control mechanisms.
• Improved Organization Design and Process Efficiency: Simplified and tightened organization design for better credit risk management and enhanced process efficiency to address regulatory needs in a timely manner.