In what now seems like the halcyon days of the distant past, business executives would draw up their requirements for technology and then look for a software vendor who could fulfil them. But with the financial services agenda being increasingly set by global regulators, executives are struggling to understand just what their requirements are under the new rules before they can even contemplate specifying new systems. In this challenging environment, institutions are turning to vendors much earlier into the process to help them define their needs before looking for technology solutions.
A case in point is the new International Financial Reporting Standard for insurance contract accounting, known as IFRS 17. The regulation introduces a new consistent, principle-based accounting approach, which is proving difficult to interpret for firms everywhere, not least in South Korea where the authorities are planning early adoption. Faced with a 2021 compliance deadline, some of the country’s major insurers have called in FIS as much for its expertise as its technology.
“IFRS 17 is complex,” says Nasser Khodri, FIS’s group managing director for Asia-Pacific, Middle East and Africa. “It requires a great deal of specialised knowledge – and that is something that we can offer.” FIS is currently working with three leading Korean insurers to interpret the rules and turn them into business processes. “Today, clients invite you into the discussion about what their requirements are, which is different from how it used to be.”
As well as new methods and processes, IFRS 17 demands more sophisticated actuarial models and a higher-performance computing environment than insurers typically have had in place, which is where FIS’s technological capabilities come in.
“We were facing challenges to improve efficiency, performance and governance of our current insurance liability models in order to implement IFRS 17 and the new Korean solvency regime,” says the head of the IFRS 17 task force at a leading Korean insurer. “We also needed to achieve integration and consistency of models and output that the regulations demand.” After reviewing the systems available in the market, the insurer chose FIS’s Prophet Enterprise system deployed on an in-house computing grid for high performance. “As Prophet is an IFRS17-ready product, we can calculate the required output efficiently and with the least effort,” says the task force head.
Korea is one of 18 countries in Asia-Pacific where AIA Group does insurance business. IFRS 17 was among the drivers when the company recently looked to improve performance, efficiency and controls in its actuarial modelling operations. The company chose Prophet, with implementation via FIS’s managed cloud service, to remove the need for complex in-house technology infrastructure and its ongoing maintenance.
“With such scale and geographical diversity, we need powerful computing capability to meet the increasingly complex regulatory requirements as well as demands from our fast growing business. FIS has delivered a cost-effective solution with scalable computing resources on a cloud platform that powers our world leading actuarial modelling system. It has substantially shortened the cycles of our financial reporting process providing management with timely financial analysis and insights,” says Ken Chan, group chief corporate actuary of AIA Group, based in Hong Kong.
Elsewhere in the region, FIS is working with a range of banks and buy-side firms, helping them address current regulatory and business challenges. For example, one of Asia’s top multinational banks is using FIS technology to cut the costs and risks of collateral management. FIS has helped the bank reduce operational complexity, achieve high levels of automation and provided a powerful engine to handle increased trading volumes and their initial and variation margin calculations.
FIS has been helping one of Indonesia’s largest financial institutions to enable its risk and treasury teams to work together in a cohesive manner for a group-wide view of interest rate and liquidity risk, and to integrate with its subsidiary to ensure consistent risk culture and practices across the group.
The bank has implemented and extended FIS’s asset liability management and liquidity risk software across the bank and its subsidiary. “The treasury now has a comprehensive view of the balance sheet to better drive the funding and risk strategy for the bank,” says Khodri.
FIS’s other projects in the region include implementing a new credit risk management system for commercial lending at an emerging market bank, as well as providing and energy trading and risk management solution for a Japanese energy producer.
The general manager for trading at the Japanese company says: “FIS’s solution will help us take risk management to a new, more sophisticated level and give us a more flexible yet robust approach to pricing and risk measurement. It will also allow us to automate our profit and loss, risk calculations and reporting, improving the efficiency of our trading management.”
FIS is a fintech company that has to come up with smart technology to help banks and buy-side firms improve efficiency within tightly constrained budgets, says Khodri. But increasingly clients are looking for knowledge and insight as well. “Nowadays, financial institutions expect technology vendors to come in with a deep understanding of the new regulations and business issues – that is the key to winning contracts,” says Khodri. “We also work with the regulators themselves as we need to know what is coming in the future as well.”
The week on Risk.net, March 10-16 2018Receive this by email