RISKOSOFT’s expected-loss accounting software is a winner
BUSINESS FRANCE UK
Business Development, international business development, international sales
RISKOSOFT Corporation of France has unveiled the first expected-loss management-accounting software solution that combines an assessment of the counterparty’s financial risk management together with an evaluation of the counterparty’s HR-related risk factors. The RISKOSOFT software suite features all the applications required to comply with the new regulations (introduced in the wake of Basel III) regarding financial risks that exist between banks and their counterparties.
The latest regulations were set up within the context of the Basel III global regulatory standard, which calls for banks to hold sufficient capital stock in order to cover expected losses (EL) in relation to banks’ counterparties (such as SMEs, large companies and government departments): this is where the software solution developed by RISKOSOFT Corporation is able to play a crucial role.
“Our software solution is unique: nothing of the sort has ever existed before,” explains Dr Pascal Lele, head of R&D and partnerships at RISKOSOFT. “This is illustrated by the reporting table generated by RISKOSOFT in relation to the IFRS 7 [standard] for financial communications — an approach that is based on EL accounting.” [To access the RISKOSOFT reporting table, please click here] Unlike ‘unexpected losses’ (UL), which are revealed through incidents shown in internal databases, ‘expected losses’ (EL) are known because they were revealed by analysing the gaps in data. The Basel II regulatory framework set the tolerance threshold covered by insurance at 20% for operational risks, before including the impact of risk-reduction techniques. While competing software packages may operate on the basis of a quantitative approach, using statistics and probabilities, RISKOSOFT software is the only solution to have anticipated the radical changes brought about by Basel III. Its strength is that it makes the link, in real time, between Human Resources data (i.e. social metrics) and Finance functions (i.e. economic metrics) within the entity.
Presented under Excel so as to comply with existing transparency and traceability requirements, the software is sold using an Application Service Provider (ASP) model. Customers open their online account on the www.riskosoftcorp.com website. The system is entirely secure, since no data is transferred by email. The server immediately retrieves the data for processing. Results are sent to the customer’s interface. Users are trained through online videos, and thanks to courses tailored to the needs of SMEs as well as major accounts. Since it focuses on expected losses, RISKOSOFT management-accounting software helps to determine the decision-making interactions as structured by players in the expenditure chain (i.e. CEO/budget organisers, HR/finance management, team leaders, employees and internal audit).
The specificity of the Basel III regulatory framework is that it is intended to pre-empt the counterparty risk, i.e. the risk that the counterparty (in a financial transaction) may fail to fulfil its obligations (under the terms of the agreement signed). The regular reporting outcomes generated by the RISKOSOFT software suite are appended to the counterparties’ performance statements. This is done in order to beef up the banks’ quantitative-analysis software programs regarding EL data as well as cost-savings data — the data being essential in order to improve the reliability of the stress tests, as applied to each counterparty. The overall outcome is a better prevention of systemic risk, in line with Basel III requirements.
Communications of a financial nature between contracting parties, as defined under Basel III, have been standardized in line with the criteria and constraints set out in the IFRS 7 standard (IFRS 7 — Financial Instruments: Information to be provided). This standard has been integrated into accounting plans, as set out by the International Accounting Standards Board (IASB) and by US Generally Accepted Accounting Principles (or US GAAP). For example, the IFRS 7 standard corresponds with Chapter 3862 of Canada’s GAAP.
The accounting software suite developed by RISKOSOFT, which is centred on expected losses, relates the pure business metrics (financial data) to the social metrics (HR-related data) in the counterparty’s database: thus, the ongoing reporting flow that is generated enables the bank to adjust, at least once per quarter, the forward-looking provisioning (or prospective provisioning) , as required by Basel III, on the basis of a complete picture of the counterparty’s risk profile and as per the requirements of the IFRS 7 standard.
Data that is both qualitative and quantitative in nature is analysed. Qualitative information concerns the counterparty’s three-year growth plan (or productivity plan), which makes it possible to identify the entity’s targets, policies and procedures in relation to risk management.
Quantitative information is given periodically in the form of statistical indicators, which provide evidence to the effect that the entity is taking into account (and not exceeding) the EL tolerance threshold over its three-year growth plan (or productivity plan). The periodical report makes it possible to assess the strengthening of the entity’s cash position thanks to cost savings, which, in turn, constitute the entity’s main security.
As part of the RISKOSOFT software suite, the functionalities on offer are wide-ranging. First of all, the software program developed by RISKOSOFT processes the data stored in UL-incident data warehouses and the cumulated gaps in performance status (income statements and Profit & Loss, or P&L) in order to calculate Value at Risk (or VaR).
Second, the software program calculates the historical threshold and the new loss tolerance threshold determining expected losses (accepted) over the three-year growth plan. Third, the software suite processes bonus compensation, which constitutes the basis of human-resources mobilisation. Fourth, RISKOSOFT’s software solution controls socio-economic indicators, i.e. the levers upon which every employee can act to improve his (or her) contribution to the common result, hence his (or her) bonus compensation. Lastly, the software suite provides prudential reporting, as applied to an overall perspective, taking into account the economic benefits in order to adjust prospective funding (covering exposure).
The software also assesses the impact that measures taken to combine productivity and health in the workplace may have on psycho-social risks.
About RISKOSOFT Corporation
RISKOSOFT Corporation is headquartered in Bordeaux (in south-western France) and specialises in management-accounting software, more particularly in relation to counterparty risk in financial transactions, as covered by Basel III regulations.
The RISKOSOFT software suite was originally developed by Dr Pascal Lele, who is, today, in charge of R&D and partnerships at the company.
For further information, please go to: http://www.riskosoftcorp.com/
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