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The View from Sales: Out in the Field

Alveo Sales Team

Stress Testing USA

Setting the Bar for Dodd-Frank, Stress Testing (DFAST) and Comprehensive Capital and Analysis Review (CCAR)

Stress Testing USA  was held in late October 2015 in New York City, highlighting corporate challenges and guidelines that the banking vertical of financial markets are concentrating on, with best practices for stress testing and capital requirement compliance. Tier 1 and Tier 2 banks in the US are subject to particular regulatory scrutiny at present, regarding compliance with DFAST and CCAR.

The conference consisted of panels and speakers representing banks and service providers, who provided in-depth views on how they are facilitating these requirements.

Bank representatives discussed openly the ‘non-existence’ of enterprise risk pre crisis. In the current (and future) environment, non-compliant banks can still operate, but will pay high financing premiums and remain under close regulatory scrutiny as well as increased reputational risk.

Management and Board Responsibilities

Establish and empower a central committee to coordinate and synchronize necessary company protocols for your firm to address and operate a seamless workflow to address the following:

  • Capital
  • Forecasting Capital
  • Risk

Boards must understand the drivers behind results in order to communicate effectively with regulators, investors and the media.

Rather than being peripheral to operations, now more than ever executives and boards must be aware and understand the justification of operational cost – and its necessity. Internal politics within firms can serve as a roadblock to internal cooperation, so good discipline equates to good practice.


Documentation of all activities and processes that a firm uses to implement a successful stress testing and capital requirements program must be enforced, managed and be readily available to those that request and or require it.

As one speaker noted, if it is not documented, it never happened. Documentation is easy to criticize, but the more you have of it, the fewer struggles you will encounter with regulators.

Documentation on what you did – and what you did not – will reveal aspects not visible in code, and explain how you arrived at your conclusions. Documentation for governance and controls means you can respond to what is being requested, nothing more. More documentation leads to more questions – so make sure you can corroborate each and every piece.

Model Governance

Incorporation of all stakeholders across multiple business lines is very important, in addition to model validation for accurate results and compliance. Validation practices and processes need to be done both internally and externally and revisited on a calendar schedule, and model validation should occur throughout the process – a shock approach to modeling at the end will force an entire rework.

Capital Adequacy and Stress Testing Models boil down to 3 things: surviving different scenarios, generating forecasts, and assessing capital ratios. The more data you have to support models, the better.


At the core of DFAST and CCAR lies data. Data underpins success, failure and compliance in every strategy, model, analysis and output.

Data is repeatedly highlighted as the single most important component contributing to regulatory compliance, as well as maximum operational efficiency. Data lineage – the ability to accurately and quickly show data from its sources of origination, through its journey impacting reporting – is crucial.

Also crucial is a central data inventory for a single source of truth – aka the Golden Copy™ – supporting all internal environments. Regulators take monthly, quarterly data and plug into their models. Data requirements are heavy and strict and historical data is closely scrutinized, so data governance lies at the core of all documentation, modeling, regulation and reporting. Regulators are looking to see a structured process in place, and not only the models, but the data feeding into the models.

Developing Stress Testing into a Long Term Repeatable Exercise for use Beyond Regulatory Compliance

Emphasis is placed on viewing requirements not as a burden to be checked off and completed, but rather an opportunity to recognize internal economies of scale and maximize practices to yield better operational results and client service.

Many benefits can be found by aligning regulatory focus with broader concepts of risk evolution and decision making. Risk supports key strategic and operational procedures, linked to the very foundation of an enterprise. When assessing time horizons and resource pressures, proper resources ensure certainty of meeting regulatory requirements.

Some key objective guidelines for firms to consider and ensure

  • The DFAST/CCAR program is effectively staffed and managed with respect to timeline and effectiveness of deliverables
  • Appropriate governance and oversight for the program exists
  • DFAST methodologies, assumptions and practices are effectively documented and conceptually sound
  • An effective model validation process is in place (and functioning)
  • Effective controls are in place throughout the process
  • The impact on regulatory capital levels and capital ratios is effective
  • All reporting is accurate and effective for senior management Public Disclosures and Agency Reporting

Ideal End State for DFAST Banks

  • Active engagement with the board and senior management
  • Strong governance and control
  • Established stress testing policy aligned with corporate risk appetite
  • Cross-functional coordination across silos
  • Comprehensive model risk management
  • Consistent data collection process
  • Flexible and dynamic technology


WFIC 12th Annual Conference New Orleans, Louisiana – October 2015

Data’s role in the Financial Industry

WFIC’s annual event brings together market and exchange data players on a global scale to discuss how we got here, the realities of the present and how to collectively solve for the future.

An effective combination of renowned speakers, moderated panels, round table and social activities produced thought-provoking and knowledgeable dialogue addressing past and present issues, realities and future vision of financial data and the role data occupies in the Global financial system.

Central to each dialogue were the stark realities of ongoing regulatory proliferation of unprecedented regulatory guidelines.

The volume of data used in analysis, trade life cycle and reporting processes has multiplied exponentially since the mid-1990s. Continual innovation of financial products, uses of technology, data feed solutions, and changing job roles also add stress at all firm levels. The importance of data quality, accuracy and management from its original sources ranging from internal usage to investor and regulatory report outputs are therefore not only hot topics, but paramount to any firm’s success.

Using a combination of visualization and discussion throughout the 4 day event, specific regulations both domestic and international were defined and explored. The data management and governance required to comply with these standards, best data management practices for successful maintenance, marketing, and growth of financial firms, were also discussed and explored in detail.

The challenges the industry faces

Often misunderstood due to their complexity, the recent WFIC event highlighted numerous challenges both old and new that industry members face, including:

  • Front line and center role of data and risk management
  • Communication between business, technical and executive groups
  • Where and when to invest human and financial capital to address current and mitigate future disruptions to a firms primary investment objectives
  • Data standardization; legal, instrument identity
  • The objectives and effectiveness of industry utilities

The Reality

There are many providers of pricing, reference, market data, exchange data, indices, government and regulatory institutions that have evolved and exist as a result of numerous drivers. Data as part of the financial market ecosystem is both essential and challenging for all firms. Intellectual property, protection of data rights, redistribution, technical integration, contractual obligations, and domestic and international data governance rules to name a few, comprise some of the discussions executives, business and I.T. departments would be wise to collaborate on and reach common ground.

Coming together allows data, exchange and index providers to meet and collaborate on requirements of consumers for information and data management we provide. As an industry group, our ability to listen, understand and advise those whose investors, businesses and livelihood are dependent on our expertise is essential. Events like WFIC provide a candid, open forum, allowing data management professionals to consult and consequently improve our practices, and to ultimately become more valuable to those we serve.