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Requirement of Investor Relationship Management (Financial Reporting) from January 1st, 2014: Supply Operational Risk data (Costs saving) associated with the Counterparty Credit Risk (CCR)
KeyforIT News Analysis and IT trends BI
Published on 03/09/2013

The legal and technical device is ready to emerge from the global economic and financial crisis from 1 January 2014:

• Although consensus was acquired after the subprime crisis on the cost accounting approach focused on Expected Losses (EL) defining the risk profile or the risk appetite of the Counterparty Credit Risk (CCR), the IRM requirement of the new reporting improving the usefulness and relevance of financial reporting, took three years to be enforceable against the concerned parties.

• The technical device integrates full employment, particularly in the G20 and the mechanisms of self-regulation in real time avoiding the recurrence of such crises.

• The IRM (Investor Relationship Management) device works on the interaction of internal control functions based on operational data providing evidence of value creation of the counterparty credit risk (SME, Large Account and Administration of the State);

• An EU-US committee of Experts and Academics integrating those of all the countries established the Knowledge Board; its objective is to coordinate the international program of Continuing Professional Education (CPE) facilitating the fast adaptation of all the business sectors to the Investor Relationship Management processes.

A/ The legal devices transposing the Basel III agreement in all countries

The directive CRD4 and the regulation CRR integrating into the European law the international reform Basel 3 (December, 2010) have been published in the Official Journal of the European Union on June 26th, 2013 (legislation L176). The new rules will come into effect on January 1st, 2014 for all the European Union countries:

• "Banks as all the companies have to adapt themselves" had warns Jean-Paul Chifflet, President of the French Banking Federation, on 13/03/2013.

Similar to the European Union, the majority of G20 countries and other countries have taken the initiative to implement Basel III in national laws to be in force on 1 January 2014.

These acts follow upon the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd–Frank Act) integrating Basel III into the federal legislation signed by President Barack Obama on July 21, 2010 (Pub.L. 111–203, H.R. 4173) :

• The American banks had asked to wait until 2014 for the application.

The Canadian OSFI Act was published in December 10th, 2012.


B/ The technical device of Investor Relationship Management (Financial Reporting)

A group of Experts and Academics of the European Union and the United States was established; they are the experts and about academics whose works anticipated the methodological requirement of cost accounting centred on the expected losses (EL), approach required to reduce the uncertainty on the objectives of government policies and companies: the Counterparties Credit Risk (SMEs, Large Companies and Governments Departments).

• The group objective is to make so that all the business sectors have the chances of qualification the IRM best practices for the conformity with the requirements of laws and regulations transposing Basel III: ICTs (information and communication) allow reaching this goal with the group of experts and academics whose work anticipated the required methodology.

At the end of June, 2013, the group signed with the scientific and professional journal world-famous (Peer-reviewed Journal) for the network of 180 countries, the agreement of publication of the article which will be used on one hand to adjust the management skills and the internal control practices and, on the other hand inform the stakeholders about the technology of information of management completing existing decision-making: the link which was lacking up to here for the structured decision-making based on data of cost saving of operational risk associated to the Counterparty Credit Risk (SMEs, Large Companies and Governments Departments).

• This article will be published in the United States in November / December in its volume, 6, 2013 under title: "The Value in Using IT-directed Investor Relationship Management".

As main reference for lectures and workshops of the Program of Continuing Professional Education (CPE), if necessary, the article can be accessed before the date of publication, on request of teachers participating in the program.

• The team works other articles which will be published during 2014.


C/ IRM Compliance


Aspects treated by the IRM are clearly mentioned in all the laws transposing the agreement of Basel III. So the measures of the CRD IV-CCR of the European Union correspond to the measures of the Canadian OSFI Act, in particular the chapter 4/Counterparty Credit Risk regulation, chapter 5/Mitigation of credit risks and in the chapter 8/Operational Risks.


The specific objective of Basel III is to take into account the impact of operating risk management on value creation capacity, thereby allowing enterprises to anticipate and cover counterparty risk (i.e., the risk when the counterparty of a transaction fails to meet its obligations or when it might be incapable of meeting the obligations before the fulfilment of a transaction).


Many decision-making techniques based on statistics and probability or stochastic processes are available to help companies in better serving their customers, and hence are particularly beneficial to Customer Relationship Management (CRM):


- However, employers and internal auditors have fewer options of structured decision-making based on the EL approach. Implemented by the IT-directed Investor Relationship Management (IRM), the EL approach regulates the practices of value creation through interaction.


D/ Value of IRM for financial reporting

The problem solved by this technology is the lack of tools interactions of internal control functions and general management:

The information system is disconnected from the actual organization of the company and the creation of value as it focuses solely as has been the case so far on the nominal layout and structure functions (computer dedicated to each function).


IRM (Investor Relationship Management) is a computer application of cost accounting (or management accounting) based on the convergence of interests of stakeholders, INVESTORS OF THE VALUE CREATION (Employees, employers, banks, insurance, shareholders, financial markets and regulatory authorities).

For that purpose, IRM is,

• an Intranet technology dedicated to the internal control of economic organizations;
• a technology services complementing existing decision-making tools;
• a technology to integrate data processing for structured decision-making;
• a technology of asset recovery and integration of dynamic equilibrium.

E / The self-regulatory mechanisms in real time

The Business partner’s interaction is based on the interest.

By prescribing the approach of cost accounting centred on the Expected Losses (EL), the Basel III agreement allows any entity to daily integrate the self-regulatory mechanisms.

Also called also "homeostasis", this concept of the cybernetics is used to explain the capacity of an organization to integrate the change by the automation of the processes of analysis and the correction of the gaps maintaining the socioeconomic balance allowing the system to continue by developing to the advantage of the stakeholders.

The information technology directed IRM provides three reports that allow investors to achieve their value added or Return on Investment (ROI). In addition, it provides the modelling system called "dynamic stochastic general equilibrium "(DSGE)" operational risk data without which macroeconomic calculations are wrong and can lead to decisions and policies based on the theories of random chance denounced by the standard ISO 31000 2009:

• This is the case when the integration of the dynamic equilibrium, the socio-economic balance governing the change is lacking.

Not incorporating these mechanisms of self-correction based on the real time gap analysis by indicators of cost savings, levers on which every member of staff can act, the economic entity can begin the change only by being confronted with the disaster or when external strengths of regulation (the financial market, the donors, the authorities of the financial regulation, etc..) impose reforms (Policy austerity and fiscal discipline).
The data supplied by IRM reporting below are thus particularly useful for the update of the risks as well of banks as stock markets and national politics, especially when the financial and social quality of the CCR is deteriorating:

1. The financial report on the cost savings (Database economic metric);
2. The social report on the improvement of working conditions (Database social metric 1);
3. The social report on the state of psychosocial risks (Database social metric 2).

Among the stochastic tools fed by the IT-directed IRM, the most known are "Monte Carlo Modelling Function Integration" (MCMFI) and "Capability Maturity Model Integration" (CMMI); these tools were built on the "dynamic stochastic general equilibrium" concept (DSGE), launched in 1995 for the macroeconomic calculations.

F / The International Scientific and Technical Committee of IRM

Members constitute the knowledge Board of IRM.

• There are two types of members: the founding members and new members wishing to participate in the program committee:

a) The founding members

The founding members of the Scientific and Technical Committee of IRM are:

1-Frank Bezzina, Ph.D., is the deputy dean of the Faculty of Economics, Management and Accountancy at the University of Malta.

2-Pascal Lélé, Ph.D., is the research and development director at Riskosoft Corporation.

3-Ronald Zhao, Ph.D., is associate professor at Leon Hess Business School, Monmouth University (New Jersey, USA).

4-Simon Grima, Ph.D., is a lecturer of banking and finance at the University of Malta and the president of the Malta Association of Risk Management (MARM).

5-Robert W. Klein, Ph.D., is associate professor and director of the Center for Risk Management and Insurance Research in the J. Mack Robinson College of Business at Georgia State University (USA).

6-Martin Hellmich, Ph.D., is professor of financial risk management at the Frankfurt School of Finance & Management.

b) New members
To become a member, thank you to fill the "Training Partner Form” above.

G/ In-service training Partnership

One of the challenges by training centers in management and internal audit at the start of the school year 2013-2014 is the update of certifications. By participating in the CPE program developed by the Scientific and Technical Committee of IRM establishments surmount easily this difficulty.
The members of the IRM world network of CPE are:

- Non-profit organizations or Associations;

- Training institutions (Universities, Colleges or Training centers);

- Local training course Providers, among witch;

- Local scientific and technical correspondents (teachers),

- Assistants-teachers (students-researchers or candidates for the accreditation to become Investor Relationship Management (IRM) providers,

- Knowledge Board members (members ensuring the technical and scientific coordination, and members assuring knowledge development and dissemination initiatives in support of IRM).



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