Welcome to our Interview with Matthias Coessens. Mathias is a Managing Director EMEA and Co founder at ElysianNxt.
ElysianNxt is the pioneer in real-time enterprise wide Risk and Finance software solutions. It enables Financial Institutions around the world to react faster and cheaper to the never ending regulatory demands with innovative software based on the latest technologies. Their primary focus areas are IFRS 9, BASEL IV and Asset Liability Management.
Matthias, thank you for taking your time and coming to our interview today. Could you tell us a short story about ElysianNxt and what are you guys up to these days?
Matthias: Our company started in 2017. We founded out the company in April of 2017, effectively, we have roots with a, a Belgian company called Financial Architects. Some of us did do some projects in Southeast Asia and then in 2012, Financial Architects got acquired by Wolters Kluwer.
After a couple of years, we wanted to feel the dynamism of a young company, again, do our own thing, make use of the latest technologies. So we founded our company in Belgium and we also set up the the development center in Bangkok, Thailand.
So that's where most of our people are based. We focused on the regulation of IFRS 9 at first from 2017, convincing a lot of financial institutions in Indonesia and Thailand.
And then since effectively end of 2019, we also looked back at Europe where I'm based at the moment and where we are now investing in resources also to bring effectively the successful solution from Southeast Asia into the European market.
What are we up to these days? As you introduced us, we are making use of the latest technology available. Without going into too much detail it’s mainly about microservices architecture, data streaming platform. It’s completely cloud native, although it can be deployed on premises also in a whole variety of deployments.
We're focusing on regulatory risk calculations such as IFRS9 that’s a standard, which is in play for quite some time. But of course now with the new BASEL updates that are on the horizon, coverage of BASELIII, including credit risk, standardized approach and internal ratings based approach, liquidity risk management, interest rate risk in the banking book, CVA, SCCR to name a couple of terms there that we cover.
What we're doing currently is of course we are looking at those institutions that want to have a very fast simulation ready platform. What do we mean by that?
The whole pandemic has effectively shown us that there is a need to be able to respond fairly quickly to changing economic circumstances, to be able to run almost on the fly simulations. With the technology that's available nowadays, that is very much possible and we provide a platform for Risk users to just change some parameters and immediately see the impact of let's say, a change in model to the risk weighted assets, to the IFRS9 expected credit losses to changing macroeconomic circumstances and so on.
It's a mouthful, but that's in short what we're doing now.
Boris: Perfect. And how do you differ from other software providers? What are some examples of your customer use cases perhaps?
Matthias: So how are we different, first and foremost, the speed at which we can do calculations. I would say we are at least 80% faster than the traditional players out there to give an example. It also goes hand in hand with the need for stress testing and simulations. Imagine it takes you an overnight batch to end a simulation. How many simulations are you really going to run as a Risk user?
The traditional type of calculations, let's say RWA or ECL calculations tend to take hours but we are doing them in minutes, so it goes a lot faster. That's, I would say the very first and foremost important differentiator.
Second is a cheaper total cost of ownership. The implementations that we do also making use of technology, or there are at least 50% shorter, which lead of course, to a lower cost of ownership.
The platform is also making use of different technologies that can be agnostic to any operating system, any database, which can also lower the total cost of ownership.
The last, but not least, it's a cloud native it's ready to be deployed in the cloud, in a hybrid form or on-premises and even as a SaaS solution.
I would say cheaper, faster, and last but not least, we built a lot of functionality inside of the product, so we actually put the regulatory requirements inside of the application itself, allowing organizations to quickly run “What if analysis” when the regulations are about to change.
So we're now engaging already in some quantitative impact studies with our clients. One example is for instance in Australia, where about a month ago, they officially announced BASEL IV as the final regulation.
We're now looking at doing a number of quantitative impact studies there, whereby they want to use the application to run everything according to the latest BASEL III requirements and now comparing those with the upcoming BASEL IV regime.
Boris: How has the COVID impacted you and your customers and perhaps what are your insights on how the pandemic have impacted the way organizations approach risk management in your sphere?
Matthias: For us, COVID will probably be an accelerator to our business. The need for running more scenarios, more for “what if analysis” will only increase. The very short term questions that we got from our clients were with regards to the payment relief schemes that the government's all of a sudden put in place.
So from one day to another governments announced that, okay, we expect that banks to give payment relief or a grace period for six months, but not every system in the banks were ready to handle that.
Those were some of the questions that we got from our clients. We then managed to run a couple of simulations for them on what would be the impact of having such payment relief schemes. In a longer term, other impacts, we see obviously are changes to the models, to the probabilities of default models, which did not always include for instance, sector based segmentation.
I would say probably there was like a SME segmentation and a wholesale segmentation, and then couple of other small, but nowadays we see that the tourism sector has been massively hit while maybe the supermarket business has not been hit at all, on the contrary.
So we see that our clients have gone into Remodeling exercises quite a bit. If we remodel, what's the impact they want to see immediately, what’s a RWA impact, what's the expected credit loss impact? Because you don't change the model just overnight without knowing what you're going to be.
Boris: So from your perspective, what are the biggest risk and compliance challenges for your customers? How these challenges changed since the outbreak?
Matthias: One of the main things that we hear also from our clients is because of these payment relief plans that have been put in place in a lot of countries, many our customers have their first indicators being almost taken away from them. What do I mean with that is that traditionally one of the very basic indicators for any Credit Risk is for instance, Days Passed Due. Once your client misses one payment, it's already a very good indicator that probably the client is having some difficulties.
However, when there is the payment relief, you don't know know whether the client is in trouble or not when there is no payment. So in the coming months, when these payment relief schemes are ending or have ended, all of a sudden you could go from a loss snapshot you had as a bank was like zero days passed due, while they might be Passed Due for quite some time and there might be a trouble.
So the banks have been flying blind a little bit with regards to that, because they had no real feel.
Yes, the client has come with the extension but whether it because he has an option to or because he has to ask for the extension. It's probably just one side effect depending from client to client and what the specific biggest risk is for them at the moment
From a regulation point of view, we do know that BASEL IV has been exended, the deadline has shifted with a year. I do feel that regulators are now going to stick to that date of 2023.
In the first indication, as I said, the Australian regulator has already officially announced. They are always one of the trends setter, so you do expect that the other national bodies to follow.
Boris: I would like to hear your personal opinion. What is a commonly held belief as it relates to Risk Management that you strongly disagree with?
Matthias: That's an interesting one. Wel, I can't immediately think of something where I say, okay, this is something I completely disagree with. I think there should be in a way much more integration between finance and risk management. I would say that was a good initiative.
IFRS9 was a good initiative to bring these two very separate roles together. Finance in the past was only looking to supporting what happened. Risk Management was reporting usually what happens next year. Now they try to combine these both worlds, which is in principle was a very good idea.
I would say that still IFRS9 has caused some challenges because different organizations using completely different techniques, how to do it.
I would say that the whole BASEL regime is a bit more prescriptive, is a bit more of a rules-based rather than a principles-based.
I'm not saying that one has to be completely rules based because you have very different organizations that all have to comply with a standard but at the same time, maybe some more guidance from the national bodies could be helpful with regards to how to implement something very important, like expected credit losses.
Boris: As it relates to risk management, what something that your clients should start doing right now that they are not doing currently or maybe another way around what they should stop doing, that they are doing.
Matthias: First and foremost, in my opinion, banks should be running a bank. They should not be trying to comply with regulations. I'm sure a lot of bankers will agree with me, although it's easier said than done. I mean, they get more and more regulations thrown at them. If you see that big institutions, having armies of people that are just trying to comply with another and another and another regulation and spending a lot of time in Excel first and foremost.
Some, especially big organizations try to do everything in-house, they try to build their our software, to comply with these things. And it might be a reason they might say, well, that the platforms are not there to cope with our organization.
That's also a possibility. But I think that there is probably a way for vendors and bankers to get together in a much more efficient way. We feel that there’re still too many banks relying on too many people just to comply with the regulations.
Various these things could be outsourced, granted that the correct system providers have to be there and I think there's a way for bankers and system providers out there to better cooperate. I think it’s answers your question from both sides, what they have to do less and what do they have to do more in my opinion.
Boris: Tell us a little bit what are the major trends in your space and what we should expect from you in the future?
Matthias: In the general space, I see that we will need to comply with more and more frequent reporting. The reporting itself is not something we do, but of course we do the calculations that feed reports, and we see that the regulators are now going into, rather than fixed format reports, they go into more data dumps. It may be a simplified term, but effectively it means if you're a bank with 5 million loans, just giving on the loan by loan level, what is the expected credit loss, what's the RWA, what's the exposure and so on.
It just almost like data dumping to the regulator. Some countries are already doing that and It's only going to increase. At the same time, I think that the frequency will increase where some banks are still reporting certain things on a quarterly basis, most on a monthly basis, but still, I think frequency will increase.
I think COVID has also shown that some regulators have asked for more, almost daily liquidity management reports.
So we are going to continue investing in that. Obviously we're going to continue investing and making sure that we'll be up to date with the regulations. If tomorrow there is like a new update on a certain BASEL IV requirements, you're going to immediately put in the production, so our clients can run their “what if scenarios” with the updated regulation. So I think that those are the main focuses.
And then to use one of the buzzwords, that it will be going to be much more artificial intelligence. I don't like to use that word too often because there's too much under the umbrella of Artificial Intelligence in my opinion.
I would say it's like introspection where the systems can actually look at trends that develop within the reporting numbers and within the calculated numbers a bit more like that, rather than, than trying to label everything as artificial intelligence.
Boris: Fantastic. Just summarize, if someone who's listening to this Interview you would like to walk away with one or two major takeaways. What would that be?,
Matthias: My point is a bit like that. Are you currently very happy with your system provider or do you feel that it's taking very long to calculate the process, you are not in a position whereby you can run a very quick simulation, not taking any shortcuts, but just to run a very quick simulation just yourself, without needing the help from IT to give you a sandbox environment.
If you feel like that's and you also still thinking, although I am spending a lot of money on my current implementation application, then I would just say, let us prove that everything I'm saying here. Don't believe a word I'm saying, let us prove it to you via an easy seeing is believing kind of concept, a proof of concept whereby we show you, this is how it looks on your data, and then try it out.
Boris: If there is something that you want to add?
Matthias: No, I just I'm very interested to follow the Global Risk Community. And I mean, keen to hear feedback on items, we’re working with, the items that are important to the industry. Of course, I'm seeing it from my angle, I'm looking at it from a credit risk point of view. Other people might look at it from the operational risk perspective, depending on his or her role.
I'm very interested to follow the developments and keep up the good work.
Boris: Thank you. I wish you and your company a rapid growth and we will continue our interview on a specific topic in a few month.