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New EU Prudential Regime
The existing prudential rules were designed for banks and are not ideal for investment firms being overly complex. A new proposal for an investment firm prudential regime is currently proceeding through the legislative process of the EU. This session will provide a review of the latest proposals and in particular will focus on:
In addition to revised capital requirements the new Investment Firms Regulation contains a wide range of other new standards that firms will need to comply with. In many areas regulatory requirements will be less onerous but firms will nevertheless need to be on top of these changes in order to ensure that they are ready. This session will look at:
ICAAP is often dissected into its component areas of speciality. This session is to take a step back and explore practical implementation of an operating risk framework, getting senior management buy-in and demonstrating clear risk lineage for the purposes of robust risk management and an effective capital process:
Risk Appetite & KRIs
Risk appetite quantification is the natural evolution for firms as their risk appetite process matures from simple, qualitative statements to something more ‘real’ for those managing it. This session covers practical experience of developing quantitative measures, including:
KRI’s are a cornerstone of risk management across all industries and a basic requirement underpinning any well-developed risk management framework. They are simple and effective way of monitoring risk within a business both proactively and reactively, yet very easily designed and implemented poorly. This presentation will focus on leading (proactive) KRI’s, the key benefits of these, and how these should be managed to reap the greatest value in terms of managing and understanding your risk. This session will cover the following:
Stress Testing & Wind Down
The Wind-down Planning Guide (WDPG) became part of the FCA Handbook in December 2016. Initially it merely acted as a helpful guidance to assist regulated firms to think more thoroughly about the operational aspects of wind-down and the costs involved. It is now a fundamental objective of FCA’s prudential supervision that firms can wind-down in an orderly fashion. Consequently, we are seeing more FCA-regulated firms (from large investment firms to smaller consumer credit firms) being asked by the FCA to strengthen their wind-down planning. It is anticipated that wind-down planning will continue to be used either to better calibrate the wind-down costs, or to ensure the wind-down process is operationally viable.
For most MiFID investment firms, they will carry out some sort of wind-cost estimation as part of their capital requirements assessment. This is an area which attracts regulator’s attention. This is because wind-down cost is analogous to the exit cost of a firm, and hence it could serve as the floor value for capital requirement to ensure the firm has appropriate resources to wind-down orderly when the scenario arises. The upcoming EBA new prudential regime places even more emphasis on this concept. So it is important that investment firms spend time to get this right. It should be further noted that, when a firm entering the wind-down phase, at lot of its financial reporting policies will also need to be adjusted, which make the cost / capital computation even more complicated. Good wind-down planning also helps to facilitate restructuring of a larger group of investment firms, which becomes a popular strategy due to Brexit uncertainty.
Apart from the prudential aspect, good wind-down planning is essential to conduct risk management and treating customers fairly, which are certainly gaining priorities in the regulatory agenda.