A UK based asset management group has an insurance subsidiary and a small banking subsidiary.

The group's banking subsidiary is planning to roll out a new online retail banking services. This service will allow the customer to view in one place all the customer's bank accounts (both with the bank and with competitors) alongside any cryptocurrency holdings he or she has across various cryptocurrency platforms and any loans or mortgages the customer has taken out from a range of sources. The service will make it easy for customers to switch between product providers for all the financial products mentioned earlier in this paragraph. In addition, the group plans to make it easy for customers to set up regular transfers into and out of the groups collective investment funds from or to any of the bank accounts the customer chooses to include in the service. There are no current plans to include any other asset managers collective investment funds within the service.

The group is exploring the best way to maximize the value it can get from its risk models.

(1)Describe the main differences between an equity-based portfolio credit risk model and a rating-based portfolio credit risk model, and suggest ways in which each could be adapted to cater for exposures to collateralized loan obligations where the underlying exposures involve mortgages on residential real estate.

(2)Describe the risks and opportunities that might arise if the group decided to use the market risk models it uses for its own management purposes to provide its asset management clients with portfolio risk statistics on the portfolios and funds in which they are invested.