In an increasingly complex and changing market, we are helping clients meet legislation and regulatory compliance, and work with them to foster greater understanding of the impact of recent and ongoing regulatory and global accounting changes.
Regulatory compliance is fundamental to all financial institutions, particularly banks. We believe it’s possible to meet requirements while enhancing overall business practices, and it is through this proportional approach that we consider the materiality and sophistication commensurate with the complexity, structure, economic significance and risk profile of an institutions exposures. We also provide guidance on factors which financial institutions need to consider when determining the specific approach on any given portfolio for meeting the applicable regulatory standard.
Below are some of the specific services within our wide-ranging expertise which are designed to ensure financial services firms achieve these goals.
IFRS 9 - 1st January 2018
We have been working with organisations since the early stages of the IFRS 9 standard resulting in an in-depth understanding of the impact of the regulatory and global accounting changes. We have built an extensive range of experience that help us to implement and deliver bespoke and flexible solutions that minimise additional workload. Our consultants add value to teams by leveraging that experience, both in terms of scale and range across different portfolios and, where appropriate, facilitating the transfer of skills to a client’s in-house analysts. We also have considerable expertise in building provision models and capital and impairment forecasting and stress testing systems, all of which are critical components to a full IFRS 9 capability.
IFRS 9 Benchmarking
Amongst additional challenges IFRS 9 will see the need amongst lenders for clear, referenceable evidence to respond to the auditors’ demand, which will likely require considerable effort and time from the banks themselves. We are working with clients to develop independent, granular and comparable benchmarking. With such measures in place, banks can set common expectations, probe specific concerns where they arise and counter any potential misconceptions the auditor may have regarding their position relative to their peers in an efficient and effective way.
We offer market leading risk management services to help banks meet regulatory compliance challenges, and keep abreast of an ever evolving regulatory landscape. We support financial institutions in developing flexible analytical solutions to complex credit risk challenges. Our services span multiple areas incorporated within Basel III, including the development of:
• Portfolio optimisation strategies
• Framework for risk based pricing and decision-making
• Stress testing and forecasting
• Expected loss based provisioning framework in accordance with IFRS 9 guidelines
• Capital models or internal rating systems
Whatever your challenge, we have the expertise and proven track record to build the right tools for your business that will help drive business change and process improvements, whilst delivering value and cost rationalisations.
Internal Ratings-Based Approach (IRB)
Our clients value our track record and expertise in supporting them through their waiver application processes. Our capacity for examining our client’s application from multiple perspectives, across models, data and IT is a significant advantage. As the changing requirements around Basel III, CRD IV and IFRS 9 come to the fore, and increasing variety of lenders who understand the value that we can bring and coming to us for support. Through the development of IRB ratings system across retail lending products, covering PD, EAD and LGD models, we can conduct SS11/13 compliance reviews of the rating system, data and IT infrastructure. This then forms the basis for the construction of on-going annual model validations process, a key requirement for IRB advanced institutions, and the basis upon which management can attest to their models being fit for purpose to the regulator.
Mortgage Risk Weights (CP29/16)
In July 2016 the PRA set out proposed changes to IRB approaches to calculating risk weighted capital, set for implementation in March 2019. Variations in the IRB approach adopted, deficiencies in risk capture and general volatility in risk weights have led to the PRA proposing changes that will likely lead to the use of an underlying PiT scorecard with the use of an TtC estimate, at a pool level, to achieve a hybrid approach. The change to calculating PD will affect all firms working in the UK residential market but it’s unclear to what extent and as to the level of model change required to meet the new requirements. We work with clients to assess the impact of the proposed changes on their portfolios and identify the actions required to implement such changes in the future.
Stress testing is an area of increasing importance and with its demand for higher tier one capital ratios, Basel III highlights the way banks address the integration of risk management and finance functions; all of which require careful planning and balance sheet management. At the same time as striving for higher capital provisions financial institutions have the challenge of accurately predicting future scenarios, something many banks have historical failed to achieve. Banks and regulators need to understand how to design a stress-testing regime that informs all stakeholders more effectively should the economy dip again. We have multiple approaches for stress testing assets across mortgages, unsecured and SME/corporates. We specialise in producing consistent suites of models, such the IRB stress test, provision base case and stress and IFRS 9 actuals, all of which are self-consistent and use the same underlying assumptions.
Current Expected Credit Loss (CECL):
In 2016, the FASB issued the current expected credit losses (CECL) standard, and much like IFRS 9 the change in standard is designed to overhaul the current impairment models in the wake of the previous economic downturn. The new accounting standards will be a particularly prevalent challenge for all financial institutions (specifically banks) and applicable asset portfolios. While we expect these changes to impact financial institutions to varying degrees, what is certain is that they will need to do a wholesale assessment of their governance and risk management frameworks. Our experience means we are well placed to assist with early stage planning, impact assessment, gap analysis, design and implementation to ensure a successful implementation of the new standards.