Building a Single View of a Customer’s Portfolio to Support Regulatory Compliance

Since 2007, banks in the Netherlands sold interest rate derivative products to small and medium sized companies. Business customers could hedge the risk of changes to variable interest rates, applied to their loans and credits, by purchasing derivatives. In 2013 the Dutch regulator AFM identified a large number of cases of miss-selling, where these products were not suitable for the needs of the customer or where inadequate and inappropriate client advice was provided. In 2016, following the advice of the AFM, the Dutch Ministry of Finance set up a compensation framework that would ultimately be used to reassess and compensate almost 20,000 SME clients in the Netherlands.

The main challenge was to accurately establish the population of customers in scope of the Derivatives Remediation framework (UHK) devised by the Dutch regulator, to gain an accurate view of the current and historic composition and value of the interest rate derivative portfolio and to gather all historic data required to assess and remediate issues related to the derivative products.

Accurately establishing the population of disadvantaged customers and calculating the compensation payable to each customer required:

-Creating an auditable single version of the truth for each customer.

-Sophisticated derivative products require complex business rules to price accurately, and administration of the relation between derivative(s) and hedged loans was unstructured. Derivative products were structured, restructured, (partially) unwound and blended over time, and the hedged loan products were similarly restructured, paid off, or cancelled over time. A mismatch between the derivate and the product became likely.

-Companies split, merged, were taken over, were pushed into special asset management as a result of negative market values of the derivates, or went bankrupt. This resulted in loans/derivatives being closed earlier, and/or exchanged for new products, adding complexity to the question whether losses were incurred, which derivatives and loans should be considered, and ultimately who should be compensated.

-Loading and combining data from disparate systems often stored in inaccessible formats.

Solution and Results:

Finding, interpreting and combining historic datasets spanning twenty years to support a massively complex remediation project under public scrutiny would not have been possible without the invaluable data analysis and transformation skills & tooling that was present within the Data and Reporting team of the Derivatives project, which included Henk Thomas of Pomerol Partners.

-Robin Polder, Chief Data & Future Technology Cooperatief Klantbelang at Rabobank

Pomerol Partners creates and delivers meaningful, business-focused data solutions. We are not general technologists; we specialize in data and data-driven projects. Our team of consultants and data engineers have a depth of experience across the full analytics supply chain – from initial data extract, through transformation and modelling, to dashboarding and operational alerting, and, onward to machine learning and predictive analytics. We also integrate data into customer facing portals. We work in a wide range of industries across a wide range of business functions including sales, operations, finance, manufacturing, marketing, and, more. Our clients include the Fortune 100 to 100 employee companies. Our consultants are in the United States, United Kingdom, and Portugal.