CRISIL, an S&P Global company, has won the prestigious Risk Markets Technology 2021 Award for best modelling innovation, for its Scenario Expansion Manager (SEM) platform for stress-testing. The platform provides a path-breaking, cost-effective solution to automate the stress-testing activities of financial institutions.

The Risk Awards are instituted by the industry publication Risk.net and are well-known as the peak awards for participants in global derivatives and risk markets.

Developed by CRISIL’s industry consortium RISE (Risk Intelligence and Solutions Ecosystem), the platform addresses a common challenge faced by banks – changing regulatory expectations – that makes it difficult to perform regulatory and internal stress-testing efficiently.

It does this by automating the scenario expansion process: expanding a regulatory or internal scenario, defined for a limited set of benchmarks, to one on a very large set of risk factors, more representative of a bank’s or financial institution’s portfolio.

(Read more about CRISIL’s industry award for best modelling innovation at https://www.linkedin.com/posts/risk-net_riskmta2021-activity-6762667183865651200-tQ5z)

Says Stephen Knights, Director of RISE, “Risk identification, limit strategies and revaluation processes may differ, but there are many similarities in scenario expansion processes across banks, and that’s what we have leveraged to create a common industry modelling framework.”

The result is a cost-efficient, centralised modelling framework that can design, expand, analyse and track all regulatory and internal scenarios, with the additional ability to share anonymised ones.

Says Mayank Gupta, SEM Product Owner, “We have utilised best practices in technology to make the platform robust, efficient and extensible. For example, it provides secured data integration facilities with banks’ own IT systems, enabling banks to realise cost efficiencies from sharing a common operational infrastructure to conduct modelling activities related to stress-testing.”

The SEM platform not only hosts a large suite of scenario expansion models, it contains all industry standard methodologies, supporting various macroeconomic and market parameters (including spot prices, spreads, curves and volatilities), implemented transparently and consistently.

Says Nageswara Ganduri, Director of Model Risk at CRISIL, “In practice, SEM drives down costs for banks that are able to use a centralised infrastructure, sparing them the effort of having to build their own sets of scenario expansion models and associated infrastructure.”

Models within the platform are automated and reusable, reducing the amount of manual work involved in each bank's scenario expansion processes and enabling accelerated decision-making.

Partner banks are currently piloting the sharing of Covid-19 pandemic-related scenarios on the SEM platform. CRISIL is also developing a climate risk stress-testing environment within the platform with models, data and benchmarking, aimed for launch in the first half of this year.

Says Amit Prakash, Head of Market Utilities at CRISIL, “Participation in industry-risk consortia such as RISE allows banks to engage with one another to discuss common industry issues and best practices. RISE, in turn, is able to collaborate with banks globally in building innovative industry solutions and deliver significant value across the risk management and compliance value chain.”

CRISIL seized the opportunity to automate and mutualise parts of the modelling process for scenario expansion – largely inefficient and fragmented until now – with the help of five major bank clients to develop the SEM platform during 2020.

(You can see more details about the SEM platform, including a short product video, at https://www.crisil.com/en/home/what-we-do/risk-intelligence-and-solutions-ecosystem/our-offerings/scenario-expansion-manager.html)