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SAS CRMS Laboratory Environment in the Basel II project within Unicredit Group
Umberto FossatiChief of Credit and Mgmt Systems Unicredit Global Information Services
Stockolm, May 2007
Lucia GhezziHead of Credit Risk Technologies UnitUnicredit Group
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Agenda
Overview of Basel II project within Unicredit Group
Italian Regulator’s Requirements
Basel II laboratory environment
Integration project of SAS CRMS suite with existing infrastructure
Final findings
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The new Unicredit Group
The new combined Unicredit Group was born in November 2005 after the merger between the former UnicreditoItaliano Group and HVB-BACA Group and includes about 230 legal entities located in 19 countries
Within the new combined Group there are 3 IT Factories which manage the IT services required by all the legal entities
Unicredit Global Information Services(UGIS) provides the Italian legal entities, Pekao Bank (Poland) and ZinvostenskaBank (Czech Republic)
Countries of Unicredit Group presence
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Objectives of Basel II Group-wide project
Re-organize all the on-going Basel II projects running in each legal entity in a unique and better coordinated program
Develop a unique group-wide Basel II program to define:
Basel II level approach
Required resources
Master plan
to reach the compliance
Develop a unique communication stream with all National Regulators
Define the Basel II target architecture on IT side
After the merger, a group-wide Basel II project started to reach the following:
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Agenda
Overview of Basel II project within Unicredit Group
Italian Regulator’s Requirements
Basel II laboratory environment
Integration project of SAS CRMS suite with existing infrastructure
Final findings
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Italian Regulator’s requirements
Titolo I
Titolo II
Titolo III
Titolo IV
Titolo V
Pillar 1
Pillar 2
Pillar 3
OrganizationalRequirements
(Section III)
Three levels of controlson the Internal Rating:
• First Level: rating assignment control
• Second Level: validation• Process• Model• IT and Data Quality
• Third Level: internal audit
Requirement Detail
Model documentation
sheet(Scheda Modello Annex D)
• 1 – 14 sections
• Detailed description of all core aspects related to:
•Target portfolio•Rating model definition path•Data quality and data storage
IT and Data Quality
(Annex A)
• Data quality standards & levels• Consistency between development
and production environment• Replicability of rating• Integration among systems
IRB approach
Credit Risk
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Unicredit addressing of organizational requirements on internal rating controls
SecondLevel
Control
First Level
Control
ThirdLevel
Control
Methodological Validation
Validation Framework
Process Validation
IT Validation
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- Data integration and aggregation- Data collection and storing- Model collection and storing- Repeatability of rating calculation
Data and RatingModel
Management
- Quality data policy- Organization structure & review- Execution of Control - Data Tracking and Logging – focused on quality controls
Data QualityManagement
Systems
IT Management
- IT Governance- IT Process- IT Application architecture- IT Technology infrastructure- IT Security- IT Resource Management - IT Knowledge Management- IT Third part management (Contract Management)
Main Areas Key Principles
The IT Validation Framework defines the key principles to be checked in order to validate the IT systems supporting IRB models life cycle
IT Validation Framework in Unicredit
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Model Sheet – Banca d’Italia
Model Sheet structure describing a rating model:
1. Model Description
2. Portfolio Description
3. Default Definition
4. Characteristics of Estimation
Sample
5. Input data
6. Factors selection process
7. Rating assignment with
judgemental approach
8. Statistic model estimation
9. Rating classes construction
and rules to assign
counterparties to rating class
10. Calculation of PD associated to
rating classes (calibration)
11. Rating changes based on
analyst evaluation (override)
12. Dynamic properties of ratings
and PDs
13. Data Storage
14. Rating and PD usage
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Agenda
Overview of Basel II project within Unicredit Group
Italian Regulator’s Requirements
Basel II laboratory environment
Integration project of SAS CRMS suite with existing infrastructure
Final findings
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Laboratory Environment components
Data
Functionalities
Processes
The Basel II Laboratory Environment is an application used to develop/validate risk parameter models and it is composed by:
Availability/Usage of historical data in order to:Develop risk indicator models (default rates, Credit Conversion factors, recovery rates….) and risk parameter models (PD, EAD, LGD e M)
Calibrate/validate IRB models already in place to verify their performance
Perform stress-testing and back-testing
Use of:
Functionalities to perform data cleaning and the definition of samples
Statistical functionalities
Functionalities to generate (semi) automatic documentation
Implementation of a workflow to:
Define standards and rules to use the laboratory environment
Define the validation phases of each IRB model and each Bank
Guarantee high-level IT security
- Component - - Main functionality and objectives -
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Previous situation
In the first half of 2006 an assessment on the current Basel II laboratory environment functionalities has been conducted with regard to the Italian legal entities. The assessment, both functional and technical, has highlighted some enhancements that later have been spotted also by Bank of Italy during the pre-validation visit in June 2006
- Functionality - - Description -
1. Customization and consequently, bank independence for the model development
2. Data feeding
3. Data sampling and sample handling
4. Exhaustiveness of the stat utilities of the suite
5. Support for the preparation of documentation
6. Model Versioning
7. Sample\data Versioning
8. Security and Controls
Possibility for each L.E. to customize the product to its own requirements even using (as a start) standard\pre-build modules
Automatic data feeding from various data sources using different formats
Possibility for users to build several data samples and share them with other users
Availability of several stat utilities for development of estimation models
Possibility to update automatically the documentation on model development
Possibility to manage model versioning and flow diagrams
Possibility to manage input\sample data versioning
Possibility to control developments on build code and set security rules in order to ensure data back up
- Current Lab. Env - - Gap identified -
Absence of pre-build modules
No different file formats can be loaded automatically (manual file load performed by UGIS as per users’ request)
No stat functions/utilities available in the solution
Documentation delivery depends on the policy rules and adopted standard
Versioning is ensured by the standard UGIS PVCS tool, which is not integrated
Sample Versioning is not available (SW versioning for the sample extraction is available as the security criteria ensure the source data integrity)
Information Security is covered by UGIS
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The decision on SAS CRMS suite
SAS suite CRMS actually bought in UGIS
• process automation that supports the model deployment in production
• complete auditability of the rating system through the identification of the scoring model with a unique identification code
• automatic reporting for the monitoring of the model predictive performance
• alert system for the analysts in case model predictive indicators overcome significance thresholds
• back testing reporting on credit data for the analysts
- Main functionalities -
In August 2006, it was decided to buy the Credit Risk Management Solution suite in order to allow the Italian Legal Entities to develop risk parameters models in a more structured laboratory environment
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Agenda
Overview of Basel II project within Unicredit Group
Italian Regulator’s Requirements
Basel II Laboratory Environment
Integration project of SAS CRMS suite with existing infrastructure
Final findings
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Integration project of SAS CRMS with the existing infrastructure
The integration of SAS has been performed by UGIS under some guidelines:
SAS CRMS had to close all the gap functionalities previously identified, had to support the development/review of IRB models performed by all the Italian legal entities (Holding included) with regards both to Group-wide models (i.e. Sovereign, Banks, Multinationals, Insurance…) and local models (e.g. RIC, RISB, RIP…..)
The system integration activities should not interrupt users’ development of risk parameters models and therefore it should not interfere with the achievement of the Basel II compliance in 2008: all the Italian Legal Entities could continue to use the current laboratory environment until SAS CRMS will be totally integrated in the Basel II Italian architecture
The integration of SAS CRMS within the Basel II Italian architecture represents a pilot:an assessment is in progress to evaluate the extension to all the legal entities within the Unicredit Group
SAS CRMS laboratory environment should replicate and assure the implementation of UGIS IT Standards previously defined with the users (i.e. environment components, process and security rules, etc.)
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According to UGIS Standards, the laboratory environment should include a ‘development’ and a ‘validation’ environment with different security rules (environment components)…
R= Read only; W= Write only; RW= Read & Write
Integration project of SAS CRMS with the existing infrastructure
- Development - - Validation -
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…and has set a logical path for the stakeholders to be fulfilled (process rules)
Integration project of SAS CRMS with the existing infrastructure
Model life cycle
Ongoing MonitoringIT DeploymentInitial ValidationDevelopment
Legal Entity
UGIS
Legal Entity
UGIS
Legal Entity
Legal Entity
UGIS
UGIS
Legal Entity
Legal Entity
1. Data extraction request
2. Data loading
3. Data validation
4. Lab. Environment definition
5. Model development
6. Model check
7. Model functional analysis
8. IT implementation
9. User acceptance test
10. Deployment in production
Player
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Integration project of SAS CRMS with the existing infrastructure
Activity
existing models
•Inclusion
•Validation
Coverage of Requirements
REPLICABILITY
DOCUMENTATION
new models
• First Development
REPLICABILITY
DOCUMENTATION
CONSISTENCY
Tool
•SAS Model monitoring tool
•SAS DI Studio
•SAS Credit ScoringEM
Methodology
•Inclusionmethodology withinSAS CRMS
•Model ValidationGuidelines (BIS WP 14)
SAS CRMS usageguide lines:
•Data management and samplepreparation
•Model Development and estimation
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2) Users’ training
4) Suite CRMS Users’ support per LE
4.1) Inclusion of existing models
4.2) Development of new models
• Users’ requirement analysis
• Metadata environments definition
• DataMarts deployment
1) Suite CRMS deployment
ResourcesPhase
3) ETL deployment (per LE)
SAS UGIS
SASUGISUCI HoldingLegal Entities
SAS(UGIS)UCI HoldingLegal Entities
SASUCI HoldingLegal Entities
1/04/071/10/06 1/11/06 1/12/06 1/01/07 1/02/07 1/03/07
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CRMS lab. available
Integration project of SAS CRMS with the existing infrastructure
1/07/071/05/07 1/06/07 1/08/07
2nd phase1st phase
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Agenda
Overview of Basel II project within Unicredit Group
Italian Regulator’s Requirements
Basel II Laboratory Environment
Integration project of SAS CRMS suite with existing infrastructure
Final findings
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Final findings
SAS CRMS suite was deployed in the Italian legal entities of the Unicredit Group as they represent a pilot for the Basel II laboratory environment
The system integration project did not interfere with the development of IRB models performed by the business users in order to apply for the IRB approaches in 2008
In the next future, it is expected that the SAS CRMS solution will be deployed in the whole Group as a target application
SAS CRMS fully supports users’ activity in a robust IT environment compliant with local and international regulation
Umberto FossatiChief of Credit and Mgmt Systems Unicredit Global Information Services
Stockolm, May 2007
Lucia GhezziHead of Credit Risk Technologies UnitUnicredit Group
End of presentation