Design & Review of Risk Management Practices

Enterprise Risk Management (ERM)

An ERM approach to risk-management encourages the organization to take a holistic and coordinated approach to identifying and managing risks. Some of the key items are:

  • Risk identification: done bottoms up from the business lines as well as top down from the board.

  • Risk appetite: assessing the appropriate measures to set limits on risk taking, both quantitative as well as qualitative

  • Scenario design: appropriately designed scenarios that capture main sources of risk, including extreme tail outcomes.

Our team of seasoned risk professionals helps clients in design and implementation of holistic risk management frameworks. These range from assessing overall ERM approach for medium sized clients, to the targeted upgrade of specific capabilities for larger institutions. In particular, the use of stress and scenario testing in financial and non-financial risks.

Risk Process and Governance

Successful implementation of an ERM framework is contingent on robust processes and governance in measuring, monitoring and, ultimately, managing risk.

  • Measurement and monitoring: Firms need a complete picture of assets and liabilities, and the technological integration of positions, market data, models of the drivers of asset and liability values and the resulting range of impacts on overall firm value

  • Governance and controls: Clear roles and responsibilities in the risk and control functions, coupled with a practical set of risk limits and prescribed remediation of breaches

  • Escalation and Action:  Clear and explicit guidelines on escalation to management and streamlined approvals to take actions for mitigating risks.

Panoramix is well-versed in best practice across risk measurement, monitoring, escalation of issues and risk mitigation. Our team has expertise in the deployment of position capture systems, quantitative and qualitative models of the drivers of value and tools to aggregate these and drill down on risk sources.

Quantitative Methods

Risk measurement in a complex and interconnected environment of financial services, is best facilitated through quantitative methods.

  • Factor Models: These models help quantify volatilities and correlations in returns. Relevant factors differ across asset classes, ranging from style and industry factors driving equity prices, to broader macroeconomic factors impacting interest rates, currencies and commodities, to intra-day factors underpinning market-making.

  • ·Stress and Scenario Analysis: Measuring risk beyond historical volatility of asset prices must include tail-risk and stressed conditions when asset values move together more strongly. Scenarios analysis can be targeted to specific markets or be broader macroeconomic scenarios evolving over longer periods.

Panoramix has deep experience in developing asset and liability valuation models and factor models and subjecting these to scenario and stress analysis.  Moreover, our team has a track-record and can facilitate the successful implementation of these models across buy-side and sell-side firms.

Liquidity Risk Modelling

Modelling of funding and liquidity risks remains a focus items for banks, brokers and asset managers.  Regulators and investors expect disciplined and practical approaches in estimation of liquidity buffers. Some of the areas of interest are

  • Secured funding through repo and stock loan for banks and brokers

  • Prime brokerage funding optimization for asset managers

  • FTP models for internal charges to business lines and trading desks

  • Liquidity stress modelling for asset managers and banks, for economic and regulatory reasons.

Panoramix has direct experience in working with leading banks and asset managers in developing analytical models and risk management for liquidity risk.

Climate-related and Environmental Risk Modelling

Climate-related and environmental risk (C&E) measurement and management is a top priority for many industries, including financial services.  Analytical methods are being developed, along with stress techniques for long-dated risks.  The main sources of risks can be bucketed as below:

  • Physical risks such as extreme weather events, sea-level rise, and changes in precipitation patterns.

  • Market risks related to changes in energy markets, commodity prices, and changes in consumer demand.

  • Regulatory risks associated with changes in emissions standards, carbon taxes, and other climate-related policies.

  • Transition risks due to changes in the availability of capital and technology required to transition to a low-carbon economy.

  • Liability risks due to legal and reputational damage associated with climate change.

Panoramix is using its risk and regulatory expertise to advise financial services firms in developing climate risk models and handling regulatory change in the area.

Panoramix also has expertise in the broader area of ESG factors and risk modelling