THE PROBLEM

In order to meet a regulatory filing requirement and satisfy an internal audit point, a Tier 1 investment bank was required to identify contingent liability clauses contained in its ISDA Master Agreements with Special Purpose Vehicles (SPV), Repurchase (GMRA) and Securities Lending (GMSLA) agreements and agreements with Central Counterparty Clearing Houses.

Contingent liabilities were defined as direct and indirect credit downgrade clauses such as Additional Termination Events, supercollateralisation events and contingent Independent Amounts. The objective of the project was to quantify potential cash outflow from the bank if counterparties exercised their rights under these clauses.

WHAT WE DID

From a standing start we had to create a process to identify and assess the number of agreements in scope and their exposures in relevant agreements accounting for 70+ percent of the bank’s exposure for the initial filing. Agreements were mastered across multiple repositories with poorly defined manual processes and sub optimal technology application to input data into. We stood up a team of 8 consultants in a non core offsite location to triage processes, data and agreements to determine the exposure priority agreements. Then codify for system inputs required for the calculation of exposures.

Senior D2LT derivatives consultants in different geos led the creation of detailed playbooks and 4i review approach while remaining closely involved throughout the life of the project and provided additional training and served as an escalation point when necessary.

The team was cross-trained so that each member was capable of reviewing all forms of agreements when workstream priorities were altered. The team reviewed over 900 GMRAs and GMSLAs and 1000 confirmations associated with SPV ISDAs and captured the relevant clauses and enabled the bank to make its regulatory filing in a timely manner.