A-Team Group speaks exclusively to Wolters Kluwer to learn more about OneSumX, a suite of integrated regulatory compliance solutions, and how it can assist firms to meet compliance requirements for the Current Expected Credit Losses (CECL) credit loss accounting standard model introduced in June 2016 by the Financial Accounting Standards Board (FASB).
What is CECL and where does it fit into your current product suite?
OneSumX CECL collates, standardizes and enriches data with the additional measures as per the CECL standards and automates the classification through flexible business rules. Having an end-to-end view of the CECL process ensures an integrated and completely auditable system. This greatly reduces the month-end costs and shifts attention from processing to analyzing. Additionally, OneSumX CECL has the technical and functional scalability to move firms from just a tactical CECL solution towards a strategic solution for all financial and regulatory reporting compliance.
Our CECL solution is part of our comprehensive OneSumX for Finance portfolio which performs all required financial industry-specific calculations and processes to streamline accounting from event to disclosure in a fast, transparent and fully-controlled way. It further supports firms in their strategic planning, budgeting and forecasting through simulations and analytics.
Who are your targeted clients and who will benefit from the product?
Our CECL solution can be implemented in any institution that needs to adhere to the FASB’s CECL rules. Up until now we have worked primarily with banks, but also captive finance, credit unions and insurance firms.
Our solution is designed with multiple users and multiple supervisory frameworks in mind, while managing data in a way that presents a single version of the truth, to ensure consistency, enhance productivity and keep compliance and reporting costs as low as possible – worthy objectives in meeting the requirements of any supervisory protocol, but the frequency and volume of calculations under CECL heighten their importance.
What are the unique features of the product and how does it compare to peer providers?
OneSumX CECL is an enterprise software solution that provides an end-to-end execution framework for the entire CECL standard. The solution is built in a modular fashion providing clients the choice of keeping existing tooling or replacing it with OneSumX modules, a prime example being the ability to execute existing models in R or Python within OneSumX CECL.
Another distinctive feature of OneSumX CECL is the fact that it is built on a fully-fledged accounting system. After all, CECL is an accounting standard and should be supported by a true accounting and financial reporting system versus just a report writer.
Possibly the most important aspect of OneSumX CECL is its transparency in both documentation and auditability. Every aspect of the CECL process is fully documented and updated with every change. Auditing is pain-free and completely transparent by way of OneSumX’s drill back and drill through functionality which provides online and printed documentation from any reported number to the source data and every step in between. The ability to show and explain your results will likely be more important in the early years than the results themselves, and OneSumX CECL stands alone in this functionality.
What were the key challenges of concept and creation, and what was the journey towards product development?
CECL is considered to be the most significant change in many decades, so the overarching challenge for everyone in the industry stem from turning the theory into practice. While the concept is rather simple – calculate and report your lifetime expected credit losses for each reporting period. The challenge stems from US GAAP being a principle placing the burden of determining how to comply fully on the financial institution. The standard gives firms wide latitude in how to compute expected losses, but the process and results have to be clear and defensible. Wolters Kluwer has a longstanding history of supporting GAAP standards and disclosures and as such, OneSumX is designed to support financial, risk and regulatory reporting requirements and the evolution thereof, and the new CECL standard is the latest major step in that evolution.
What problem is CECL trying to solve? What questions does it answer?
When the FASB introduced a new impairment model, commonly known as CECL, applicable to the U.S. GAAP based countries such as the US, Israel, Japan (limited) and, Switzerland (optional), it represented a major shift from the existing incurred loss model.
Instead of recognizing losses when the contract’s carrying amount is not recoverable, CECL requires measurement of expected losses over the entire contractual lifetime of a loan taking into account a reasonable and supportable forecast of the future. While the benefits of providing this forward-looking information is to provide more and better information to auditors, shareholders, and members of the public are clear, it will be a significant additional burden for the financial institutions to fully comply.
Preparing for and implementing CECL will compel financial institutions to think about credit risk in new and more timely ways and to either recalibrate existing models or develop new ones, with matters being especially thorny and complex for institutions that operate across borders. Furthermore, the new accounting standard also imposes a lot more requirements on financial institutions on the accounting and disclosure fronts. Such a formidable undertaking will also require effective communication among all of the business functions on a frequent basis, so it is vital that all processes are transparent, efficient and repeatable.
To do this effectively, an analytical solution is required that comprehensively address the particular methodologies and calculations outlined in CECL. They must encompass all facets of the myriad processes, from project consultation to classification and measurement, impairment and hedge accounting, through to internal and regulatory reporting.
Does CECL work in tandem with any other products in your suite, and if so, how?
CECL is one of many solutions within the OneSumX portfolio, and as such, works in line with all those solutions. For example, credit risk data has many common elements for CECL, stress testing and liquidity. OneSumX loads all data elements once in one process, all risk computations are performed and then all reports are coded and rendered simultaneously by our Secondary Reporting Process (SRP). This enables efficient processing of financial (GAAP), prudential (regulatory) and risk reports along with total transparency and reconciliation between these reports, all of which are supported by our drill through and drill back technology.
What is your future strategy for OneSumX – how will the offering develop going forward?
Our Regulatory Update Service (RUS) can be included as part of our OneSumX CECL offering. What that means is as changes in the standard are made, they will be incorporated into our RUS updates which clients review and accept as applicable. We see CECL impacting more than just ALLL reporting, becoming one of the catalysts to finally bring Finance, Risk and Regulatory Reporting truly together in a business as usual process and pace. Financial institutions are already looking at the impact CECL will have on their budgeting and incentive processes and systems. OneSumX is designed for this integration and poses great opportunities to gain coordination, efficiency and transparency in these critical functions.