Rule 122a stipulates the main investor requirements with which banks have to comply. The regulation calls for these financial institutions to have formal procedures and operations in place to monitor - on an ongoing basis and in a timely manner - performance information on the underlying exposures in structured finance assets.
This would mean being able to track and monitor the performance of aggregated pool metrics such as the exposure type, the 30-/60-/90-day delinquency rates, the default and prepayment rates, as well as the industry and geographical diversification within a pool.
However, a recent survey by Principia Partners of more than 500 market participants showed that access and integration to collateral performance remained one of the biggest technical challenges investors said they faced. This is despite data being the top priority for investors in the current environment.
Over 50% of investor respondents stated that they were less than effective at performing this key operational requirement.
Douglas Long, executive vice president in business development and product strategy at Principia, stated that the company is due to launch the latest version of its Web-based structured finance platform to address the specific investment analysis and stress testing requirements placed on European investors by the amendments to Rule122a.
"The latest release delivers the operational and analytical backbone credit investment managers need to satisfy additional risk oversight requirements for structured finance - to help qualify for capital relief on these assets," Long said. "It provides investors with an easy-to-implement, low-risk solution that can rapidly get them up to speed and comply with new mandates prior to January 2011."
Principia's platform consolidates issuance and performance data from an investor's internal and external sources so they can see it all in one place and slice and dice it consistently on a single platform.
"Performance measures can be tracked and used for initial investment analysis and in unison with waterfall models integrated with the system to perform cash-flow projections for stress testing and valuation purposes," Long said. "Because it's an enterprise platform, investors can see all their exposures in one place, more proactively manage and report on risk factors and maintain compliance with investment guidelines."