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.
Compliance and controls
Laws and regulations are becoming ever more detailed, extraterritorial reach is increasing, and the consequences of non-compliance are more severe than ever. As a result, many companies in various industries are reviewing their overall approach toward achieving compliance. They reorganize their lines of defense, monitor compliance real time through automated controls, and demand compliance functions work together with the business to eliminate compliance risk “at source” through the redesign of core business processes and automation. Often, this needs to go hand in hand with an organizational transformation that changes mindsets and behaviors. We help our clients diagnosing their current state of compliance, design holistic transformation programs with them, or support them on selected high-priority interventions in this area.
The economic crisis exposed major weaknesses in the systems of financial institutions, motivating banks to reassess their IT, operations and data supporting Risk Management. In addition, increased regulatory demands—in particular spurred by a recent FSB/Basel Committee regulation on risk data aggregation and reporting, 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 and engaged with working groups of the industry 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 infrastructure, applications, and data. Using these tools, we help clients reduce capital demand, enhance liquidity management, enhance reporting capabilities and transparency, increase operational efficiency and develop more rapid and accurate pricing processes. We support many financial institutions—including some of the world’s largest banks—along their risk IT transformation journeys.
With the introduction 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 regulation, coupled with a highly volatile and generally adverse macroeconomic environment, has profound consequences to the viability of many insurance products and to 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.