Transform risk analytics into Competitive edge for Capital Management

From IAS39 historical statistic data to Point in Time Expected Credit Losses : when the world shifted from Google Maps to Waze.

My dear friend Gregory is an experienced and talented Geo-location IT engineer as well as an amazing story-teller. I would like to share with you what he told me about IFRS 9  and CECL regulations because he gave those accounting tsunamis a palatable touch-and-feel description.

First, a bit of history. Some of us recall using Google Maps to find a place ?  It was very efficient. Especially in Tokyo with its complicated house numbers. It almost replaced the policeman stationed a the corner of Omotesando Dori.

But when it came to real-time traffic, no comment.

Indeed, until Google purchased Waze, its traffic algorithm was based on statistics whereby historical records of what happened on Finchley road last year on Early May Bank Holiday will appear on your screen and dictate your journey to Covent Garden. That is, if you leave in NW…something. And since we – human – have a bizarre tendency of doing things differently – which proves that we are not as predictable as monkeys – you and I inevitably hit traffic. All together. And spent our beautiful morning on the roads with the kids getting wild in the backseats.

Until Waze brought free and live traffic data to our smartphones. And the rest is history.

Well; that is exactly what the accounting regulators have in mind with IFRS 9  and ALLL CECL regulations. When provisioning for potential credit losses in their loan and bond portfolio, Gregory told me that the regulators want Financial Institutions to give out a Waze and no longer a old Google Map to its many stakeholders.

And Yes. Those Wazes – not pronouncable – will change direction according to what is happening on the roads – in the economy – real-time – Point In Time. It will make our trips – investments – sometime unexpected – more volatile – especially when its takes us thru remote roads – uncharted territories.

But boy, have you ever noticed how accurate Waze is in timing arrivals. We exactly know how long it will take to go Covent Garden next week the second we board our car. And if something happens on the road we will all be updated – real time. And with driver-less cars and other new disruptive technologies coming on board – literally – Waze will become more efficient and indispensable.

Statistics and historical data are useful but Point In Time and accurate financial information will become more and more relevant and indispensable in rapidly changing, AI / IoT hungry economies. So, kudos to the accounting regulators who – this time – are far ahead of everyone else in many “Waze”.

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