The introduction of the Expected Credit Loss (ECL) model under FRS 109 has fundamentally changed the way financial institutions assess and recognise credit losses. Transitioning to an ECL framework requires collaboration across multiple functions, including risk management, finance, data management, technology, and economic forecasting, to ensure an effective and compliant implementation.
1.Suitability
An ECL approach tailored to your organisation’s size, product portfolio, customer profile, and data maturity.
2.Stability
Models should generate reliable and consistent outcomes across a range of economic conditions, ensuring confidence in financial reporting and decision-making.
3.Sustainability
Efficient, scalable, and accurate frameworks that support long-term compliance and evolving business needs.
Our Approach to ECL
Policy Formation
Establish key accounting and risk policies that form the foundation of the ECL framework. This phase includes documenting conclusions on portfolio segmentation, low credit risk thresholds, SICR criteria, and default definitions.
Model Development
Develop tailored ECL methodologies, including Probability of Default (PD) and Loss Given Default (LGD) models. Where historical data is limited, alternative market or proxy data may be utilised, alongside relevant macroeconomic considerations.
Input Identification & Validation
Assess and validate internal and external data sources used within the models. This includes evaluating forward-looking information, defining key assumptions, and establishing triggers for future updates and monitoring.
Go Live & Ongoing Support
Support implementation through process documentation, policy approval, stakeholder training, and periodic model reviews to ensure continued effectiveness and regulatory compliance.
