ICA is born from the demand for new solutions to the new challenges posed by the latest regulations on derivatives.

New regulation on derivatives

The environment in which the financial institutions operate has dramatically changed since the last financial crisis. In 2009 the G20 did set some clear goals to reduce the systemic risk from OTC derivatives:

  • All standardised OTC derivatives should be traded on exchanges or electronic platforms, where appropriate.
  • All standardised OTC derivatives should be cleared through central counterparties (CCPs).
  • OTC derivatives contracts should be reported to trade repositories.
  • Non-centrally cleared derivatives contracts should be subject to higher capital requirements.

Creating new requirements and challenges in an industry with less capacities

The consequences for banks have been quite dramatic: requirement for more capital, for more funding, reduction of complex trades and, as a result, significant lower margins and incapacity to create the same value than before the crisis. The bottom line is now driven much more by controlling costs than growing revenues. While regulation has discouraged the use of complex products, the derivatives environment has not become simpler: the products are mostly plain vanilla but the refinement of models to evaluate them have largely contributed to a more sophisticated and complex environment.

A hardly manageable growth of requirements for computational power

New regulations (such as Fundamental Review of the Trading Book (FRTB), Basel III liquidity ratios and counterparty credit risk management measures) combined with more complex models are leading to an exponential growth of risk computations requirements. In addition intraday pricing of counterparty risk, funding risk or capital for a new or unwinding OTC trade through usually specialised desks (such as XVA desk) requires these heavy computational resources to be available on a pre-trade basis. But in a time when investments are scarce, costs reductions are required and with existing systems built many years before those requirements appeared, the number of options is limited. They often consist in short term “patches”, chasing the next requirement and purchases of new hardware but banks rarely have the luxury to take a step-back and build the right system for the next decades leveraging today’s technologies and the efficiency and elasticity of the cloud.

Regulators pushing for more simplicity, standardization and transparency; and banks looking for solutions delivering mutualisation of costs and efforts

As a summary, regulations are pushing towards simplicity, standardisation, transparency and are requiring at the same time many more computations. Banks are looking for solutions, reductions of costs with limited investments capacities, which can be achieved in particular through mutualisation of efforts and costs as they have started to do it in different fields (such as KYC, Back-Office,…): ICA is bringing a solution in the form of a risk platform delivered as a Software as a Service allowing banks to benefit from a turn-key best of class risk and front-office solution from data input to the delivery of results including the computational power.

ICA delivers a turn key solution to these issues through a Risk as a Service platform

Banks do not have any more to worry about the implementation and maintenance of complex, ageing internal or licensed systems, nor do they need to provision for the computational resources (and wait months for it) or operate an expensive orchestrating software to run highly parallel computations. It is all delivered in one solution while maintaining all the configuration and control of the steering parameters in the hands of the user, at a fraction of today’s cost!