IMD & IRD Awards 2022: Best counterparty data project or initiative—Fitch Solutions

OVERVIEW

The Basel III reforms, which are due to take effect in January 2023, represent a new regulatory challenge for banks. As part of Basel III, banks will be required to implement a new standardized credit risk assessment (SCRA) approach to assign risk weightings to unrated bank exposures. In anticipation of these changing requirements, Fitch Solutions launched its new Basel III SCRA Data product in June 2021.

THE SOLUTION

While the Basel III SCRA approach assists in reducing risk weightings for unrated banks, it also greatly increases banks’ data management loads. Fitch Solutions Basel III–SCRA Data addresses this challenge by providing standardized regulatory minimum capital requirements and buffers data that can be used alongside existing datasets and fully integrated into existing systems.

Currently, fixed risk weightings are applied to unrated banks under a standardized approach, requiring more capital than typical investment-grade credit ratings. The new SCRA approach is more granular: Instead of a single fixed risk weight that sees all unrated banks treated the same by regulators, there will be three different buckets for unrated banks. Therefore, risk weights may fall, reducing banks’ capital requirements—in some cases from 100% to 30%.

To adhere to the new SCRA approach, banks are tasked with gathering minimum capital requirements and buffers data from any jurisdictions where it has unrated exposures. This poses a significant challenge for many banks, as information is often difficult to locate and may be in a different language. 

In order to address this burden, Fitch Solutions researched, compiled, translated, and standardized data in many different formats and languages from regulators and banks in more than 160 countries and territories to create its Basel III–SCRA Data offering. It can be accessed by Excel add-in, API, or datafeed via Fitch Connect and can be used in conjunction with existing Fitch data or any other similar dataset. 

WHAT’S TO COME

Basel III–SCRA Data is still new and has yet to undergo significant alterations to the core product. However, it has already expanded to a broader range of countries and jurisdictions: At launch in June 2021 it covered 130 countries and jurisdictions, and as of January 2022 that number had grown to more than 160, a 23% increase. The firm has also reacted to country-specific requirements of the Basel III reforms. For example, after Brazil imposed liquidity coverage ratio (LCR) minimum requirements under the SCRA approach, Fitch Solutions revised the product to meet these specific standards. It will continue to enhance and maintain the solution, as more countries publish their requirements.

WHY THEY WON

Fitch Solutions’ Basel III–SCRA Data offering is a good example of a data vendor identifying a pressing industry need, understanding what that need means practically and operationally to its clients, designing a product to meaningfully address the problem, and then bringing it to market well ahead of the regulatory deadline. Fitch’s SCRA Data initiative offers current and prospective clients a helping hand and a way forward at a time when they need it most.