The trading functions of banks and corporates come under the highest degree of scrutiny given the nature of the business they conduct and the perceived complexity surrounding certain financial transactions. Financial institutions are concerned that an unexpected and significant loss on a trading portfolio could indicate wider issues within the market risk framework.
KPMG's Market Risk services enable to review and benchmark the trading and market risk functions. Focusing on their interfaces and reporting lines as well as the policy underlying the identification, measurement, monitoring, and control of market risks across all asset classes.
KPMG’s Market Risk services include:
Risk management framework diagnostics and design We evaluate existing risk management and trading control frameworks, suggesting appropriate benchmarks against which to compare them (i.e. detailed gap analysis vs supervisory framework). We identify any weaknesses in these frameworks, focusing on the specific nature of the business being conducted and offer practical and appropriate advice on how the controls could be strengthened.
Furthermore, we evaluate and manage the risk arising from potential changes in interest rates to non-trading activities.
Preparation for internal model approval KPMG has extensive experience of helping institutions through the review process required to gain regulatory approval for using an internal Value-at-Risk (VaR) model to calculate regulatory capital.
- Provide a quality assurance or challenge role as part of the steering committee
- Perform a gap analysis between the existing operating environment of the VaR model and regulatory requirements, suggesting remedial actions to address the gaps
- Independently validate the VaR model.
Quantitative model solutions Our quantitative analysts perform independent validations of both VaR and derivative pricing models. These validations test the assumptions behind the modeling techniques, giving users added comfort about the limitations of the model. We can also suggest ways of incorporating the review findings into relevant risk and pricing policies.
Pricing and valuation services We can advise on all mark-to-market and fair value appraisals. Using highly advanced pricing techniques and software we can independently value both single trades and portfolios across asset classes. In addition to helping organizations design effective, IAS-compliant hedge programs, we also work with our Accounting Advisory team to prepare existing portfolios for hedge effectiveness testing to comply with IAS requirements.