By Lauren Smith
The Current Expected Credit Loss accounting standard (CECL) replaces the incurred loss model with a lifetime expected credit loss estimate, which will result in significant changes to financial institutions’ reserving process. Many industry experts consider CECL to be the biggest change to bank accounting ever. Is your institution prepared for the change, or do your current systems and processes fall short? A successful transition will include a holistic approach, but how will your institution get there?
Taking a holistic approach to the CECL Transition
CECL represents a major shake-up to the banking industry. CECL will entail considering more information than current reserving standards, most notably the requirement to consider reasonable and supportable forecasts. As a result, allowance practices will need to change for all institutions that hold financial instruments measured at amortized cost. The changes will have cross-functional impacts to the allowance process, requiring new data elements, models, disclosures and analytics.
The Financial Accounting Standards Board (FASB) and banking regulators have emphasized that institutions will be able to leverage current risk management and reserving practices as a basis for their CECL implementation. However, for many institutions and vendors, CECL represents a significant increase in complexity that may be difficult to manage with their existing systems and processes.
In order to satisfy the CECL requirements, institutions and vendors must be able to:
- Obtain validated application-ready data
- Execute forward-looking models to generate lifetime credit loss estimates
- Adjust post-processing results for factors not included in the models
- Generate an allowance for individually assessed assets
- Create the quantitative disclosures and empower the analytics necessary to support qualitative disclosures
- Perform ad-hoc analytics to address questions from stakeholders
SS&C Primatics’ EVOLV Reserving Solution (EVOLV) holistically addresses the transition to CECL through a centralized platform that automates the end-to-end reserving process. It captures credit information via a controlled workflow and integrates with finance functions and downstream reporting needs. Our model execution capabilities efficiently execute advanced risk analytics through a controlled and scalable platform, which brings together data and models from all lines of business, addresses data management challenges, and closes the gaps between model development, model execution and reporting.
SS&C Primatics’ full-featured, “out-of-the-box” software solution solves today’s business challenges and is built on a technology platform that anticipates and embraces future changes. EVOLV is the only integrated risk and finance solution purposely built to adapt to changing business needs. EVOLV is:
- Flexible – fits within existing banking systems and processes
- Extensible – new functionality is extended from the core platform
- Integrated – modular components are integrated across one platform
- Future-proof – system updates are deployed through SaaS infrastructure
EVOLV solves financial institutions’ most complex risk and finance challenges so you can successfully navigate the new requirements introduced by CECL. To learn about how EVOLV can help you manage the transition to CECL, read “Tackling CECL with a holistic approach”, or contact us for a demo at firstname.lastname@example.org or 800-234-0556.