Investment Bank – Profit and Loss Attribution

Background

The client was a G-SIB whose investment banking division required a significant overhaul of P&L attribution (PLA) procedures due to an MRIA (Matter Requiring Immediate Attention) raised by regulators. All aspects of PLA, including workflows, trader sign-offs and market risk processes were thus subject to a mandatory effort to improve controls and governance. The bank assigned a project team to establish guidelines for a standards framework across each of the functions and control areas. In addition, a global review of each asset class in the bank’s inventory was conducted to ensure that all divisions complied with these new standards.

Delv was selected to provide subject matter expertise and guidance on P&L attribution methodology to the project team.

Challenges and Solutions

While reporting was generated from a single database, the investment bank operated numerous independent risk engines for its range of products, and each product had its own PLA calculation formula and accounting methodology. The main challenge was to ensure that the PLA reported in the database reflected the correct attributions from the risk systems, and that they were consistent across all asset classes. Delv business analysts first worked with front, middle and back office personnel to map and document each one of the flows and calculations, from PLA risk engine source to trader workflow signoff. Next, Delv reviewed the product methodologies to ensure their compliance with the new standard, and compiled a list of remediation items for IT teams where development was necessary to change the calculation method.

It was known that there would be some exceptions to the standards framework for complex products where risk-based PLA was unavailable or not applicable. To compensate, Delv prepared a materiality analysis for the bank’s Central Methodology Governance team, and ran a gap analysis of Required PLA (as specified by market risk) versus Actual PLA from the product’s source risk system. In cases where PLA was unavailable in the risk engine system, Delv prepared development requirements for IT teams, then coordinated remediation steps and resource priorities with the Finance, Market Risk, and Product Control stakeholders.

Execution and Delivery

Delv business analysts completed the discovery, materiality, and gap analyses within the allotted timeframes and prepared full documentation of each asset class for audit and regulatory review. Additionally, numerous ad-hoc analysis stemming from adjacent work streams were provided throughout the project.

Result

The analysis provided by Delv in collaboration with bank stakeholders was approved by the Audit team, as were the remediation plans for execution by IT.

"Having worked with Delv for many years and across a range of products and processes, I would always recommend them as a go-to organization."

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