Securitization Testing Process
Writing by Raghuram Remella on Monday, 16 of February, 2009 at 11:36 am
Securitization is a means of raising finance secured on the back of identifiable and predictable cash flows derived from a particular set of assets. Almost any assets that generate a predictable income stream can be securitized. Securitization allows a company to separate financial assets from credit, performance and other associated risks. The result is the reduction in the amount of capital required to finance the company, which helps in removal of pooled assets (the assets which are securitized) and related debt from the balance sheet, funding at lower costs than otherwise available and in the improvement in liquidity, investors get secured debt instruments as against unsecured corporate bonds in traditional finance and the borrowers get an indirect access to the securities market and benefit from the increased availability of loans due to enhanced liquidity of the issuer.
To set up Securitization, certain mechanisms like, data capture and reporting, securitizing the Pool, setting up and running the Special Purpose Vehicle (SPV) or Issuer, and maintaining the Pool in line with the select Securitization model, must be identified, developed and implemented. With these mechanisms in place, the Securitization stages like, identifying what Business can be securitized, taking the Pool to the Market and securitizing and maintaining the Pool are achieved.
As the whole process deals with value of the business and risks to the business revenue, an intensive testing of the process for all the phases is mandatory.
AppLabs, with its hugely successful track record of testing in the Financial Services sector, can produce rigorous, risk-based and gap-less test processes that will greatly reduce the risks in a Securitization program and, in particular, identify and correct any invalid entries in the Securitization Pool. This consideration alone may well produce a Return On Investment (ROI) which is many times the cost of testing.
Category: Compliance Testing
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