Risk Management in Servicing and Reporting

As complex financial instruments like securitised assets rise in popularity, financial firms face three interrelated challenges: ensuring transparency, delivering deals efficiently, and managing risk effectively. Of the three, risk management is increasingly important to funders and they require a level of reporting, transparency and integration with client systems which can be difficult to achieve without significant investment. Understanding these challenges, and how to remediate them, is essential for banks looking to deliver more complex structured solutions.

Visibility of item level performance in portfolios

Risk departments typically want as much oversight of performance as possible, so that action can be taken to mitigate risk where possible. But it requires significant work to get item-level performance insights from portfolio reports.

Typically, funders must wait for a monthly field audit to see portfolio performance. This is due to the need for manual data pulling and formatting for stakeholders. Getting an accurate and up-to-date view of the portfolio is made difficult due to this waiting period.

However, new technology solutions can help. Demica’s platform, for example, offers a near-live perspective. Corporates can upload daily open item files and funders get access to granular, detailed reports, including item level performance. This allows funders to analyse specific customers, debtors, and time periods for individual transactions or across the portfolio. Access to current, valuable data eases risk departments’ minds and can also boost advance rates.

This higher level of transparency also benefits the corporates in another way—Treasurers often tell us that they are seeing an up-to-date picture of their receivables book for the first time.

Powerful bespoke reports

Accurate reporting is crucial when handling complex securitisations, but different stakeholders will require different views and formats of the data. It can be time consuming to restructure reports for different purposes, and the time spent doing so can mean that by the time stakeholders receive them, the reports are out of date.

This is where modern systems can also improve processes. Using the latest technology, once a reporting need is established, automated reports can be used to monitor key metrics, run calculations, and raise red flags when a set trigger point is near or reached.

Demica’s platform serves up a number of standard reports that have been designed in coordination with many global banks and non-bank funders. In addition, funders can use Demica’s platform to create custom reports in their preferred format. This allows a financial institution to automate reporting processes to satisfy internal requirements without having to retrain their team or disrupt daily processes with reporting tasks.

Reports can be produced in any format, on any data point in the platform, at any cadence determined by the funder (or corporate).

Back Up Servicing and other 3rd party integrations

Many risk departments make use of third-party Back Up Servicing (BUS) providers to protect and service the assets in case of insolvency or any other event which might mean the original provider can no longer do so. This can be viewed as a type of insurance and providers are often insurance companies who will assess the risk and take on a portfolio based on their assessment.

BUS providers require a level of oversight and reporting on a portfolio so that they can be familiar with the assets covered should the need for servicing or active collection arise.

Demica uses encrypted connections to link with third-party services, and can integrate directly with BUS providers. BUS providers can monitor data using Demica’s platform via a ‘Cold’, ‘Warm’ or ‘Hot’ arrangement, which determines the extent to which live data is available to the BUS provider. This connectivity is crucial if a program enters into a situation where the BUS is actively collecting.

Trusted and relied on by funders worldwide

Demica’s innovative platform bridges financial and risk management, setting a new industry standard. Our financial solution experts collaborate with our specialist technology teams, delivering unmatched service. This powerful combination has earned Demica a significant market presence.

Funders in the securitisation industry increasingly recognise the platform’s value, with some insisting their customers use Demica for reporting as a precondition for securing funds. The company’s connectivity and influence continue to grow, reshaping industry practices and expectations.

This is the first part of a series on Demica’s transactional servicing and reporting capabilities. For more information on these, click here.