Regulatory changes in the financial-services industry have come with dizzying speed and complexity, often with massive implications for business models and competitive strategies. We work with clients to address the impact of new regulatory requirements, and we provide insights that allow clients to identify and seize market and competitive opportunities arising from regulatory change. Our exceptional team of former senior regulators delivers deeper insight to clients on the most pressing regulatory concerns. Areas in which we have distinct expertise include:
In light of the wave of new regulation following the financial crisis, we have built strong capabilities to help clients understand the impact of regulatory changes and design mitigating strategies. For example, since 2009, we have analyzed Basel III’s impact on the global banking industry through outside-in assessments of the changes in required capital, liquidity, and funding needs. In two major global economies, we assisted the largest 10 and 16 banks, respectively, with a Basel III benchmarking effort and generated insights into the right calibration of the rules. We have regularly shared our key insights in various research papers.
With the introduction of stringent regulations for capital, banks that once had abundant resources in these areas now need to pay close attention. In light of these changes, we have quantified the impact of regulations on various business lines within individual banks and on the entire banking industry. We have also designed tools for diagnosing and mitigating inefficient uses of capital. For instance, we created a framework that details more than 260 common sources of capital waste, such as poor data quality and inappropriate risk-modeling methodologies. In our experience, the framework typically helps clients achieve a 5 to 25 percent reduction in capital waste. In the last 4 years, we have advised more than 30 leading banks on capital-optimization programs.
The economic crisis exposed major weaknesses in the systems of financial institutions, motivating banks to reassess their IT. In addition, increased regulatory demands, pressure from top management for faster and better business information, and advances in risk management by top-tier competitors are prompting financial institutions to transform their risk IT functions.
To support clients in these efforts, we have collaborated with the Institute of International Finance to analyze current practices in risk IT and develop industry-wide best practices that address risk data, operating models, technologies, organization, and interactions with supervisory bodies. Our tool set also includes diagnostic tools for assessing current risk IT capabilities, as well as model architectures for systems, applications, and data. Using these tools, we help clients reduce capital demand, develop more rapid and accurate pricing processes, enhance reporting capabilities and transparency, and increase operational efficiency. We support many financial institutions—including some of the world’s largest banks—along their risk IT transformation journeys.
With the introduction (even if postponed) of the Solvency II directive, the insurance industry faces a more stringent capital regime and an entirely new set of requirements on risk governance and disclosure. This new legislation, coupled with a highly volatile and generally adverse macroeconomic scenario, has profound consequences on the viability of many insurance products and on the sustainability of some business models in the industry.
To support clients, we have analyzed the impact of Solvency II on four areas: capital management/optimization, investment strategy, product portfolio and in-force optimization, and overall risk governance. We have developed tools and measures to help clients assess their Solvency II preparedness, optimize capital consumption by 15 to 20 percent, improve pricing and product features, increase profitability of existing books, rethink risk governance, and develop fit-for-purpose solutions to implement Own Risk and Solvency Assessment (ORSA). We help clients craft solutions based on their specific background and characteristics (such as size, international reach, and ownership) to ensure that they can fully implement the solutions and capture maximum value.