Name: Looking forward to RiskMinds International: Basel III and market risk management highlights
Uploaded: 2024-08-15T14:40:50.681Z
Duration: 321.84

Eduardo Epperlein_V3_1.mp4

Eduardo Epperlein_V3.vtt

English

{{00:00:08}}
Eduardo, thank you so much for
joining me today at RiskMinds HQ.

{{00:00:12}}
Tell me as we're heading into the
last bit of the year with RiskMinds

{{00:00:16}}
International coming up, what are you
most excited to talk about at the event?

{{00:00:20}}
Thanks for inviting me, Lily.

{{00:00:21}}
I think probably the good old topic, Basel
III, has been in the works, I think, over

{{00:00:27}}
13 years, and it's finally happening.

{{00:00:31}}
And then it's not, so that
I think is why I think it's

{{00:00:33}}
still going to be very topical.

{{00:00:35}}
That's what I'm looking forward to.

{{00:00:37}}
Exchanging notes with ex colleagues,
friends, and regulators hopefully as well.

{{00:00:42}}
And of course last year we on the
Global Risk Regulation Summit, we

{{00:00:45}}
talked about the Basel endgame a lot
and what are you expecting coming down

{{00:00:49}}
at the end, by the end of the year?

{{00:00:51}}
I think the endgame is
a very long endgame.

{{00:00:55}}
Yeah, I think last year the U.

{{00:00:56}}
S.

{{00:00:57}}
had issued the NPR, as I understand,
they're going to reissue, get revised

{{00:01:02}}
NPR, so we're all looking forward to that.

{{00:01:04}}
Also, in the meantime, the
U.S.., sorry, the U.K..

{{00:01:07}}
finalized their rules as well,
but another key topic is not

{{00:01:11}}
just the rules, but the timing.

{{00:01:13}}
So, we already have the
delay from the European Union

{{00:01:17}}
probably we all expect the U.

{{00:01:19}}
K.

{{00:01:19}}
to follow through with the delay
by another year, and the U.

{{00:01:22}}
S.

{{00:01:22}}
as well, because they're
still deliberating.

{{00:01:25}}
So as a global head of risk
methodology, is the kind of holistic

{{00:01:30}}
picture coming together for you?

{{00:01:32}}
Actually, I'm in an interesting position
as global head of methodology at Nomura

{{00:01:36}}
because we're one of the few firms
that are planning to adopt IMA, that's

{{00:01:41}}
for internal model for market risk.

{{00:01:43}}
And as of now, we're still in the
timeline of March 2025 for go live.

{{00:01:51}}
We're in a March to March calendar year.

{{00:01:53}}
Yeah so in a way we're kind of
at the moment one of the earlier

{{00:01:57}}
adopters and most likely the
first adopt, potential adopter of

{{00:02:01}}
internal models for market risk.

{{00:02:03}}
And I knew outside of this
conversation, you mentioned the

{{00:02:06}}
reduction of the adoption of
internal models for market risk.

{{00:02:10}}
What is that trend and why
is it so important in the

{{00:02:14}}
light, in light of Basel 3?

{{00:02:15}}
Basel 3?

{{00:02:17}}
Yeah I have particular interest
in that because certainly in the

{{00:02:23}}
world we were full adopters of
internal models across the board.

{{00:02:27}}
We, ISDA and Ernst Young conducted
a recent survey and they issued a

{{00:02:31}}
white paper on this very topic, where
I think out of about, what, about

{{00:02:36}}
25 firms the original adopters of
IMA, then it's now gone down to 10.

{{00:02:40}}
And even when you think about
10 of which we are one of them.

{{00:02:45}}
These are still probably planned to
implement, so you never quite know.

{{00:02:50}}
So that's already a huge reduction.

{{00:02:52}}
I'm not sure if the regulators were
expecting that, that huge drop.

{{00:02:57}}
And on top of that, it's
a reduced scope as well.

{{00:03:01}}
'cause even when you adopt there's
a minimum requirement of coverage

{{00:03:04}}
and many firms will be going
for much less than 50% coverage.

{{00:03:08}}
So it's quite a massive
change and I think.

{{00:03:11}}
My personal view is, it'd be the first
time in a long time where we take almost a

{{00:03:17}}
step backwards in terms of sophistication.

{{00:03:20}}
And I understand that from the regulatory
perspective, better standardized model,

{{00:03:24}}
which is what's been rolled out is
better than the old standardized model.

{{00:03:29}}
But if you're originally an
internal models firm, going back

{{00:03:33}}
to a better standardized, it
is a step backwards in my view.

{{00:03:36}}
And I think we, we haven't yet
uncovered the consequences of that.

{{00:03:42}}
And I think it's, it could be
serious because you now be having

{{00:03:46}}
to manage, perhaps scarce resources
in terms of RWA on what would be a

{{00:03:51}}
common model that is not owned by
us, as the regulators define it.

{{00:03:57}}
It's a better standardized model,
but it's still, there's always

{{00:04:01}}
going to have limitations by design.

{{00:04:03}}
So that, that does worry me.

{{00:04:05}}
And I think, like I said,
I don't think it was.

{{00:04:08}}
The original intention that there
will be such a big drop, and that was

{{00:04:11}}
certainly the topic of the white paper
that was issued by ISDA and Ernst Young.

{{00:04:17}}
Yes, and that sounds like a big going
to be a big topic of conversation

{{00:04:20}}
at Risk Minds International,
certainly if it has big consequences

{{00:04:24}}
for large firms such as yourself.

{{00:04:27}}
Thank you very much for joining me today.

{{00:04:29}}
Thank you, Lili.

{{00:04:30}}
Pleasure.

Eduardo, thank you so much for
joining me today at RiskMinds HQ.

Tell me as we're heading into the
last bit of the year with RiskMinds

International coming up, what are you
most excited to talk about at the event?

I think probably the good old topic, Basel
III, has been in the works, I think, over

And then it's not, so that
I think is why I think it's

Exchanging notes with ex colleagues,
friends, and regulators hopefully as well.

And of course last year we on the
Global Risk Regulation Summit, we

talked about the Basel endgame a lot
and what are you expecting coming down

I think the endgame is
a very long endgame.

had issued the NPR, as I understand,
they're going to reissue, get revised

NPR, so we're all looking forward to that.

Also, in the meantime, the
U.S.., sorry, the U.K..

finalized their rules as well,
but another key topic is not

So, we already have the
delay from the European Union

to follow through with the delay
by another year, and the U.

as well, because they're
still deliberating.

So as a global head of risk
methodology, is the kind of holistic

Actually, I'm in an interesting position
as global head of methodology at Nomura

because we're one of the few firms
that are planning to adopt IMA, that's

And as of now, we're still in the
timeline of March 2025 for go live.

Yeah so in a way we're kind of
at the moment one of the earlier

adopters and most likely the
first adopt, potential adopter of

And I knew outside of this
conversation, you mentioned the

reduction of the adoption of
internal models for market risk.

What is that trend and why
is it so important in the

Yeah I have particular interest
in that because certainly in the

world we were full adopters of
internal models across the board.

We, ISDA and Ernst Young conducted
a recent survey and they issued a

white paper on this very topic, where
I think out of about, what, about

25 firms the original adopters of
IMA, then it's now gone down to 10.

And even when you think about
10 of which we are one of them.

These are still probably planned to
implement, so you never quite know.

I'm not sure if the regulators were
expecting that, that huge drop.

And on top of that, it's
a reduced scope as well.

'cause even when you adopt there's
a minimum requirement of coverage

and many firms will be going
for much less than 50% coverage.

So it's quite a massive
change and I think.

My personal view is, it'd be the first
time in a long time where we take almost a

step backwards in terms of sophistication.

And I understand that from the regulatory
perspective, better standardized model,

which is what's been rolled out is
better than the old standardized model.

But if you're originally an
internal models firm, going back

to a better standardized, it
is a step backwards in my view.

And I think we, we haven't yet
uncovered the consequences of that.

And I think it's, it could be
serious because you now be having

to manage, perhaps scarce resources
in terms of RWA on what would be a

common model that is not owned by
us, as the regulators define it.

It's a better standardized model,
but it's still, there's always

And I think, like I said,
I don't think it was.

The original intention that there
will be such a big drop, and that was

certainly the topic of the white paper
that was issued by ISDA and Ernst Young.

Yes, and that sounds like a big going
to be a big topic of conversation

at Risk Minds International,
certainly if it has big consequences

Thank you very much for joining me today.

Expert Insight

Eduardo Epperlein, Managing Director, Global Head of Risk Methodology, Nomura, joins us at RiskMinds HQ to talk about the upcoming RiskMinds International event taking place on 18-21 November 2024, in London. Eduardo shares the key topics he would like to discuss with colleagues and peers, for example the Basel III developments and the slower adoption rate of the internal models approach for market risk.