Prudential support

Change is the only constant in the regulatory landscape today. The industry is responding to regulatory reforms daily. Some of these reforms require firmwide changes; and materially impact firms’ strategies, business models, risk management and internal processes. We help clients embrace regulatory change and reduce their exposure to regulatory risk.

Current market challenges

Themes currently affecting the Prudential regulation landscape include the following:

(a) Basel 3.1: The PRA has consulted on the implementation of Basel 3.1 in the UK from 2025. The proposed reforms are expected to introduce sweeping changes to how banks – both small and large – compute their regulatory capital requirements. These reforms will impact firms’ internal processes, business model; risk management; and strategy.

(b) IFPR: The FCA has recently published their feedback on their review of the implementation of IFPR in the UK. They have identified material deficiencies in how firms have approached the ICARA process, and wind down planning. They have sent clear messages on these weaknesses, and that they should be remediated; meaning, that firms will be required to respond accordingly.

(c) Model Risk: The model risk policy statement will will require firms to align with binding principles on model risk management. Firms will have to define a model; consider standards that will underpin their build, usage, change and validation; and, implement robust governance arrangements within the model risk ecosystem. Firms of all sizes will be affected by these standards.

(d) Data and Regulatory Assurance: The PRA have reiterated their concerns about data in their most recent objectives letter. Data lineage and governance is an industry-wide weakness, and there is significant regulatory concern its impact on the reliability of regulatory returns. The regulator will continue to commission s166s to gain assurance on regulatory reporting. Firms are starting to develop their internal assurance capabilities on this regard.

How we can help

We can help by providing:

(1) Policy Interpretation and Support

(2) Regulatory change management (project management and support)

(3) Assisting in liaison with regulatory bodies and banking steering committees

(4) Peer benchmarking

(5) Gap analysis against underlying regulations

(6) Impact analysis of proposed regulatory changes

Some of our standard services include:

(1) Preparation and submission of regulatory returns

(2) Review and assurance on regulatory reports and processes

(3) Litigation and due diligence support

(4) Capital and Liquidity optimisation

(5) Review of standard regulatory disclosures (ICAAPs, ILAAPs, Recovery Plan, Wind down plan, ICARA, Risk Management Framework, amongst others)

(6) Regulatory Advisory (e.g. policy development, policy interpretation & advice, preparation for regulatory visits, L-SREPs, C-SREPs amongst others)

(7) Section 166 reviews and remediation

(8) Model risk management

Our leadership and engagement team brings together the technical expertise and local/jurisdictional presence. Our regulatory knowledge represents a blend of:

(1) Ex-regulators – allowing us to feed in the regulatory supervisors’ perspective into your decision making

(2) Ex-industry practitioners – allowing us to balance the prudence of regulatory supervisors’ perspectives with practical, financial and operational considerations

(3) Career consultants – allowing us to benchmark our advice with best practice in other firms

We set a very high bar for the quality of service that we deliver to our clients; and as such, we have an excellent track record of retaining our client relationships and work with them for long periods of time.

Case study

Background

A large European bank requested a review of their regulatory reporting ecosystem, with specific focus on certain regulatory returns. This stemmed from a recent regulatory examination that had led to a regulatory fine.

Our actions

We applied our bespoke approach to reviewing the firm’s regulatory reporting arrangements.

This approach covered the following themes:

Governance review entailed the review of senior management’s accountability for each stage of the regulatory reporting process; review of the split of working level responsibilities in the current regulatory reporting process; and review of the adequacy of challenge processes, especially on the matter of key regulatory interpretations, judgements and assumptions, and on the matter of completeness of data and accuracy of computations.

Controls review entailed the identification, mapping, reviewing and validation of the design and operating effectiveness of regulatory reporting controls, financial modelling, and the handling of spreadsheets & reconciliations within the regulatory reporting process.

Data review entailed materiality-based regulatory conformance testing with a focus on the most significant regulatory judgements & interpretations. It also included a review the bank’s use of data in the context of its regulatory submissions and the adequacy of data integrity and processing (i.e., consistency, accuracy, and completeness).

Project outcomes

We presented to the CFO, CEO and Chairman of the Board, and prepared a detailed report outlining our key findings. Following the review, the firm engaged us to re-design and roll-out new procedures and framework for preparation and testing of regulatory reports.

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