November 1, 2017 is a date large banks across Canada will have marked in their calendars, and for no small reason. On that day IFRS 9, the international financial reporting standard, comes into effect. The regulation will change accounting standards for banks and other lenders and represents a considerable challenge for these bodies to be adequately prepared.
SAS are the global leaders in analytics and have been in operation for over 40 years. With mountains of data set to be scrutinized by regulators under IFRS 9, SAS is sure to have a busy few years ahead.
Darryl Ivan is national practice lead, Risk Management for SAS Canada and explains why his firm is best placed to assist the large financial institutions on this matter.
“From a market share perspective, IBM is our closest competitor while SAS leads in advanced analytics market share, owning 33.3 percent market share of the 2014 advanced and predictive analytics market, more than twice that of our competitor.” he says. “We derive about 40 per cent of our revenues from financial services. That in“cludes insurance, banking and buy-side wealth management. Risk management is a huge area for us now in investment and we are acknowledged as a leader in that space.”
So what does IFRS 9 mean for financial institutions and what how does it differ from its precursor, IAS 39? Ivan explains the reasoning for the new regulation.
“Typically banks have to report on credit loses that they have incurred,” he says. “IFRS 9 represents a convergence with current risk management practices and accounting. In light of what happened in 2008, the feeling was there wasn’t a good representation of loses and risks in lending.”
He continues: “We want you to look into the future and predict and set aside money for loses that you probably will incur. It is something that will be enforced by local regulators across the world. Any institution that extends credit or provides loans will be impacted by this.”
Where the likes of SAS come in is offering expertize in the world of analytics. The big data involved when you’re talking about the major banks is simply huge, so that’s where a guiding hand is preferable.
“The current accounting techniques where you forecast potential loses will have additional layers of complexity added in for requirements on data. There is active coordination that needs to take place within these organizations between risk management, accounting and IT.”
He adds: “There are elevated requirements around governance and transparency. IFRS9 is a principals based guideline and not overly prescriptive. There is room for interpretation which can create heartache. So you need that level of transparency to demonstrate your assumptions and the quality of your data, your lineage, your models and so forth.”