BlackIce Enterprise Risk Management (CSE: BIS)
November 30, 2016 By Nick Waddell
Ask any winter driver who has encountered a patch of black ice that sent them skidding across the road and they will tell you that sometimes the most dangerous thing is the thing you can’t see coming.
In the world of banking, anyone who lived through the crisis of 2008 knows the risks are real. Between 2008 and 2012, The Federal Deposit Insurance Corporation (FDIC) closed 465 failed banks. In the five years prior to 2008, just ten banks failed. The lesson of the era is clear: get risk wrong and you won’t last long.
Blackice Enterprise Risk Management Inc. (CSE:BIS) is a new company with a long history. The company’s founders, in fact, have expertise that dates back to the Basel Committee on Bank Supervision (BCBS) guidance on capital standards, issued more than two decades ago. BlackIce founder Judy Kalyan saw a gap in the risk management market. Sure megabanks have their own frightfully expensive internal risk management systems, but what about the mid-sized players? The small domestic banks?
Kalyan saw the need for a standardized, generic product that would be inexpensive to deploy in a manageable timeline, but provided quick and accurate reporting. Enter the The ERA TMsolution. BlackIce’s proprietary tools give banks a new way to achieve a true Enterprise-wide view of their risk data elements organized in a logical, comprehensive, easy to use and understand data model.
Cantech Letter talked to Judy Kalyan about the company’s past, present and future.
Judy, can you tell us how BlackIce got started?
My background is as an IT software developer and my husband and business partner, Mac Kalyan’s background was in capital markets trading and risk management. About 20 years ago we got involved in providing global risk management consulting and technology to financial institutions, specifically prompted by the needs and requirements set out in the Basel Committee on Bank Supervision (BCBS) guidance on capital standards. Over the course of the last 20 years we have had clients ranging from large global banks to small domestic banks. Our consulting engagements helped us to realize that there was a pressing need in the marketplace for a fully developed, comprehensive, easy to use and understand Data Platform to support all the risk management and regulatory analytics and reporting required at a financial institution.
What market are you serving with your product, ERA TM?
The Enterprise Risk Aggregation is a fully developed solution that can be used directly out of the box. The typical approach suggested by consulting firms or undertaken by financial institutions is often a costly, inefficient, time consuming model of deploying a generic reference model solution and then implementing and customizing for each and every bank. All banks, globally use the same data elements and process in their risk management and regulatory reporting. There is a real need for a fully developed easy to use solution, directly ‘out of the box’.
Our solution has been developed and improved from knowledge gathered in our 20 years experience consulting in this space. We are initially targeting mid-size and community banks in emerging market countries that are just beginning their Basel journey, as this has proven to be a timely pain point for banks looking to achieve compliance in a timely and cost efficient manner. We recently successfully deployed our solution in a mid-size bank in Vietnam, and we are pursuing further sales in Vietnam and other ASEAN countries starting their Basel journey; Myanmar, Laos and Cambodia.
We are also pursuing a SaaS (Software as a Service) model for our Stress Testing tool for the US market to address recent developments in compliance expectations from the Federal Regulators. There are over 6,000 banks in the US in this tier, so we see tremendous potential for our products in this market.
We believe the mid-size and community banks would prefer to implement a one-time cost effective solution versus increasing their risk-compliance and technology departments on an ongoing basis to support adherence to regulatory requirements.
Don’t huge financial firms already have risk management tools?
Yes, the largest international financial institutions have spent millions developing internal systems; some with more success than others. While our solution is capable and sufficiently comprehensive to support these large banks, there is room for a standardized, generic product that is inexpensive to deploy in a manageable timeline and yet provides quick and accurate reporting. We believe the mid-size and community banks would prefer to implement a one-time cost effective solution versus increasing their risk-compliance and technology departments on an ongoing basis to support adherence to regulatory requirements. We can provide a superior product at a much more cost effective price point.
How does a tiny firm from Canada come to have an advantage over its competitors?
We have been rolling out Basel and Risk Data Warehouse solutions for over 20 years now. Through this experience we determined that the traditional model of selling a product and then relying on a System Integrator to install, implement and customize the product was time consuming, costly and inefficient. As all institutions globally use the same data elements and fundamental processes for their risk management and regulatory reporting, they would all end up with the same results after this customization process. We asked ourselves, why keep re-inventing the wheel each time; why not start with the end result and hit the ground running? Unlike most solutions, the ERA TM is not a ‘Black Box’ that may result in the institution being unable to demonstrate the Use Test; our solution is open, accessible, well designed and easy to understand and is developed using current relevant forward-looking technology, not the legacy systems or approaches of the other vendors in the space.
What is the ERA product replacing, typically?
The ERA TM solution provides a target for banks to define a new process to achieve a true Enterprise-wide view of their risk data elements – organized in a logical, comprehensive, easy to use and understand, data model. Historically, banks tend to accumulate their data in ‘Silos’ of data marts/solutions, with departments reluctant or unable to share responsibility for their specific data in a timely manner. This has always presented a challenge when trying to view data at the enterprise level (which is necessary for Basel and other Regulatory reporting). The process of starting from scratch or with a banking reference data model has always presented challenges in that the scope of the project is too large to be successful in a timely and cost effective manner. With ERA TM as the target solution a true Enterprise Risk Data Warehouse is a timely, cost effective accomplishment.
Where regulators and even the institution’s own Internal Audit function was once in the past satisfied with a “siloed” review or assessment, they now mandate an enterprise-wide view of the risks and processes within the institution.
How has regulatory risk changed since the financial crisis of 2008?
Even before Lehman Brothers collapsed in September 2008, the need for a fundamental strengthening of the Basel II framework was apparent. The current BCBS guidance allowed financial institutions to be too leveraged and have inadequate liquidity buffers; these risks were further emphasized by poor governance and risk management practices. Through subsequent guidance issued by the BCBS, other global regulatory bodies such as the Financial Stability Board and country-specific regulators such as the Office of the Superintendent of Financial Institutions (Canada) and the Federal Reserve Board and Office of the Comptroller of the Currency (United States), the regulatory scrutiny and granularity has increased immensely. Where regulators and even the institution’s own Internal Audit function was once in the past satisfied with a “siloed” review or assessment, they now mandate an enterprise-wide view of the risks and processes within the institution. Our solutions are built to support an enterprise-wide view. The landscape continues to change and now is becoming even more prescriptive for the mid-size and community institutions; for example Stress Testing.
Is there a typical customer for ERA, and if so who is it?
We are specifically targeting mid-size and community banks; as these banks typically do not have the resources to launch their own in-house attempts at an enterprise data and regulatory solution, or in many cases are unable to undertake an expensive and prolonged implementation from a consulting firm. With the ERA TM solution they can now benefit from our completed product. We feel the particular timing for these banks is also relevant, given that BCBS and other related regulations are now beginning to be applied at their level.
Tell us a bit about your management team and how they are qualified for the task ahead…
Our management team consists of seasoned professionals that have been practitioners in this space for two decades. We also leverage and incorporate our BlackIce Advisory Committee who have extensive financial, regulatory and academic experience, during the development of our solutions and various financial institution engagements; our solutions are a hands-on creation from their experiences.
The delivery model for this product will be cloud-based, SaaS, relying on a monthly fee cost model.
You offer a few products and services, including training and consulting. What will your margin mix look like, ultimately?
Typically in this space the solutions are essentially provided as a consulting engagement. Our model differs in that we have designed our solutions as a target that clients map their data to, and then start using the solution immediately – all development is complete. The implementation and training components of a project deployment cost less than 20% of the fee charged. Our revenue model is the initial project fee plus on-going maintenance to cover all updates issued by the regulatory body to the guidance. Our maintenance model follows the typical 20% per annum protocol.
What milestones should investors be looking for from BlackIce?
We anticipate securing a number of financial institutions in Vietnam through Q1 and Q2 of 2017. While we have currently implemented the only functioning RWA/CAR Calculation Engine in Vietnam, the timing with respect to State Bank of Vietnam issuance of Basel II Guidance could not be more timely for BlackIce to leverage our current market-leading position in this region. Our Calculation Engine has already been customized for the rather unique and specific regulations for Vietnam, given that they are one of the very first countries in the world to adopt the new BCBS ‘Revised Standardized’ regulations. It is expected that we will have opportunities to sign many of the 30 banks in Vietnam over the next two years. Following from there we will roll out our solutions in the neighboring countries of Cambodia, Laos, Myanmar, as they launch their own Basel guidance.
At the same time we will continue with development of our BlackIce Enterprise Stress Testing (BEST) solution, which is designed specifically to meet the new expectations of the mid-tier and community banks in the USA (numbering over 6000). The delivery model for this product will be cloud-based, SaaS, relying on a monthly fee cost model (operational cost vs capital cost for the banks). Watch for product development news and a big cloud-hosting partner to launch this product in the U.S. We expect dramatic sales from this product in the next 18–24 months.
What would you like to accomplish in the next 12 months?
We expect to be self-funding once the Vietnam sales take off in early 2017, and will leverage this into the launch of our cloud-based model of BEST for the U.S. market. This should lead to a dramatic rise in revenues and a very exciting 2018.
About Nick Waddell
Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.
Director and VP Corporate Finance
BlackIce Enterprise Risk Management Inc.
shares listed on the CSE: BIS