In the aftermath of the Lehman crisis of 2008, financial services firms face a number of new regulations and risk management challenges. One key regulation is the Fundamental Review of the Trading Book (FRTB), which is part of the upcoming Basel IV set of reforms. The new regulations require banks to reserve sufficient capital to maintain solvency through market downturns and avoid the need for government bailouts. However, in this challenge lies an opportunity: Banks are using FRTB mandates in order to build a firm foundation for future risk management and compliance applications that lower development and staffing expenses, optimize reserve ratios, maximize available capital and drive investment profits.

1. Future-Proof Your
Risk Management & Compliance
with Graph Technology
Nav Mathur
July 2018

2. • Regulatory Maelstrom
• BCBS 239 and Credit Risk
Management
• FRTB Compliance Overview
• Need for a Modern Risk
Management Platform
• Demo
• How Graphs Uniquely Address
Risk & Compliance
• Industry Outlook & Summary
Agenda
Nav Mathur
Sr. Director – Global Solutions @ Neo4j
Nav@Neo4j.com
@nav_mathur | in/navmathur
2

3. Today’s Financial Services Regulations Are Dizzying
Basel
Accords
I-IV
Dodd
Frank
EMIR
FATCA
Financial
Stability
Council
Risk Reporting
and Disclosures
Capital
Treatment of
Securitizations
Living
Wills
Alpha
Regulation
FFIEC
Volcker
Rule
Collins
Amendment
23A Affiliate
Transactions
SR 08-8Federal
Register
Counterparty
Credit Risk
Off-Balance Sheet
Transactions
Foreign Investors
Tax Treaty
Mortgage
Servicing
and Lending
Payments, Custody,
Clearing and
Settlement
Capital
Ratios and
Constitution
Capital Planning
and Stress Testing
Derivative
Training Rules
Client
On-Boarding
Exchange
Trading
MiFID II
Hedge Fund
Regulation
SWAPs
Push-Out
Durbin
LEI
Orderly
Liquidation
Say
on Pay
Liquidity
Provisions
Leverage
Ratio
Concentrations
and Limits
Executive
and Director
Activities
Truth in
Lending
BCBS
239

4. Risk Data Aggregation
Governance and
Infrastructure
Risk Reporting Supervisory
Governance
Data
Architecture
and IT
Infrastructure
Review
Remedial Actions and
Supervisory Measures
Home / Host
Cooperation
Accuracy
and Integrity
Completeness
Timeliness
Adaptability
Accuracy
Comprehensiveness
Clarity and Usefulness
Frequency
Distribution
BCBS REGULATORY PRINCIPLES
DATA LINEAGE REQUIRED
Risk Modeling Requires Data Lineage

5. Credit Risk Management
•Connected Nature
of companies
•How market
events and news
cascades through
connections
•Impacts Bank
Loans to
Companies not
directly connected
to market events
https://neo4j.com/use-cases/privacy-risk-compliance/

6. Group of traders execute their own strategies
and have a dedicated risk management function
Trading Book
Regularly traded assets
Calculate fair market value daily
Higher reserve requirements
Banking Book
Assets to be held to maturity
Not required to be valued daily
Lower reserve requirements
Trading Books Carry the Bulk of Investment Risk

7. Internal Risk Models Drive Lower Capital Reserves
Lower capital reserves drive higher bank revenues and profits

8. Tracing Risk Lineage
FRTB requires banks to
calculate investment risk at the
trading-desk level…
…requiring them to evaluate
the interrelatedness of every
investment on their books.
Graph technology is
the right solution

9. FRTB: Evaluating Risk Models Against the Current Market
After risk models back 10 years, banks must test
them using real data at 24 points over the last year

10. Baskets DerivativesTrading Desks Prices
TRACE RISK DATA LINEAGE
AGGREGATE RISK
Risk Management Traverses the Graph Both Ways
After tracing data lineage back to authoritative sources, banks must aggregate
risks back up to the trading desk to calculate capital reserve requirements

11. Internal Risk Models Span Investment Data Silos
Graph technology unites discrete silos into a unified data source
that enables banks to trace compliance data lineage

12. Need for a Modern Risk Management Platform
Benefits:

13. Demo
Nav Mathur
Sr. Director – Global Solutions @ Neo4j
Nav@Neo4j.com
@nav_mathur | in/navmathur
13
Harland Duman
Solutions Engineer @ Neo4j
Harland.Duman@Neo4j.com

14. How Graph Technology Uniquely Addresses Recent Regulations
0000 BCBS 239 CCAR FRTB MiFID II CAT NMS GDPR BSA AML
Objective
Aggregation
and Reporting
Capital
Adequacy
Capital Reserve
Requirements
Markets
and Trading
Trade
Monitoring
European
Client Privacy
Fraud
Detection
Deadline Active Active Jan 2022 Active Active May 2018 Active
Data Lineage ● ● ● ● ● ●
Real-Time Risk Aggregation ● ● ● ● ●
Temporal Consistency ● ● ● ● ● ● ●
Risk Analytics ● ● ● ● ● ●
Model Visualization ● ● ● ● ●
Compliance Reporting ● ● ● ● ● ● ●
Governance ● ● ● ● ● ● ●

15. • Banks should focus on implementing FRTB in a smart way,
including the broader strategic goal of upgrading the
trading-risk infrastructure from front to back.
• Banks have been given a golden opportunity to get their
trading houses in order and to set the stage for all the
advanced technologies that are so thoroughly remaking the
industry.
• Compliance with FRTB is not the only reason to overhaul
infrastructure, but it is a powerful one. A coherent front-to-
back technical architecture and aligned organizational
setup eliminate many sources of discrepancy among the
business, risk, and finance views.
• To produce reliable, fast, high-quality measurements (as
specified in BCBS239), an institution needs reliable, high-
quality data processed by the cogs of an efficient operating
model. Only then can the bank truly know its complete risk
profile and profitability, and execute its strategy with
assurance. Underlying both arguments—compliance and
business—are the considerable benefits of consistency and
efficiency
A select few of these leaders are also
developing proofs of concept for applications
of advanced analytics and artificial
intelligence. These provide ways to capture a
higher share of the potential efficiency gains,
in a shorter time frame and sometimes at a
lower cost.
Leading to:
•Better transparency
•Enhanced risk management
•Greater operational resilience
McKinsey & Other Studies Agree!
Credit: McKinsey & Co. – FRTB Reloaded Paper
Basel Study found 70% banks cannot adequately explain the P&L and its drivers.

16. Neo4j Nails Financial Services Risk Management & Compliance
• Manage highly interrelated, connected data
• Trace the lineage of risk factors
• Merge trading, fund management, pricing,
and other silos into a unified dataset
• Visualize and modify risk model graphs
• Modify models to keep pace with changing
market conditions, organizational changes
and investment strategies
https://neo4j.com/use-cases/privacy-risk-compliance/

17. THANK YOU
Future-Proof Your
Risk Management & Compliance
with Graph Technology