Why Your E/CTRM May Not be the Best Credit Tool for your Business
ComTech has long stated that C/ETRM is, in fact, a misnomer. It stands for Commodity Trading and Risk Management but over the years risk management has become increasingly complex and specific in various areas like price, market, credit, regulatory, operational and so on meaning that most C/ETRM’s fall a long way short of delivering comprehensive risk management across these areas. However, it is also true that some C/ETRM’s do a better job than others in various aspects of risk management – mainly price and market risk and in some forms of regulatory risk. Despite this, many users still use their C/ETRM for various risk management purposes. The problem with this approach is that, as stated above, many C/ETRM’s really do not cater for risk management at any level of depth or granularity rather often simply offering various canned or custom reports.
This is particularly true when it comes to credit risk. ComTech has always seen credit risk as comprising three inter-related parts – counterparty credit management, calculating and reporting various credit exposures and applying credit limit monitoring, and collateral management. Most C/ETRMs offer very limited credit functions that may be limited to a manually entered credit limit and limit warnings. A set of reports that must be pulled manually is often the true extent of credit functionality in C/ETRM, says Natallia Hunik, Chief Revenue Officer at Cubelogic. “These take time to run and maintain,” she said. “The picture becomes even more manually driven if there is more than one C/ETRM or source of credit risk data and this needs data to be aggregated or merged.”
Cubelogic, she reminded me, is agnostic when it comes to C/ETRM, and its solution grabs all the relevant data across C/ETRMs and any other systems like ERP etc. In fact, she notes that often more data than just that stored in a C/ETRM is needed to obtain an accurate and comprehensive view of credit exposure. “It’s not just about reporting but also things like Counterparty onboarding, limit checking, credit policy and automation of the processes,” she said. In fact, she went on to list many features of a credit risk solution like Cubelogic’s that may not be part of a C/ETRM solution like margin management allowing calculation and planning for margin calls, comprehensive limit management, a real-time pre-deal credit check, collateral management and comprehensive exposure calculation including ability to net.
“Without a true credit solution, there is a lot of time-consuming manual work to be done and that can result in disjointed and inaccurate results,” she told me. “With all of the data that is required about counterparties, credit limits, payment and invoicing data, it’s a huge manual effort to pull all of this together to get to a single source of the truth.” However, in my own experience, stakeholders expect much more rigor and accuracy these days especially lending banks. They expect not just accurate and timely risk management process and methodologies but the ability to track who did what, when and why. “Real credit solutions track all of that via comprehensive audit trailing,” she said.
In fact, it is often frustration with trying to use C/ETRM modules and functionalities in risk that bring opportunities to Cubelogic according to Natallia. Indeed, Cubelogic also offers Credit Express, a credit solution aimed smaller businesses. “Another major issue with using the C/ETRM is timeliness,” she said. ”Increasingly, having risk metrics updated in real-time or as events happen like price movements, for example, are sought after features as they help businesses become more agile and proactive – especially when many changes can now be triggered by unexpected geopolitical events.”
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