Regulatory Capital
Overview
Financial Services firms subject to capital adequacy and solvency requirements are obliged to assess and monitor the level of regulatory capital which must be maintained on a continuing basis. The assessment and monitoring should relate to both the minimum capital requirements (Pillar 1) and the firm’s own assessment of capital required (Pillar 2). All of this should be aligned with business objectives, risk appetite, cost of capital and target return on capital employed.
Potential issues
Legislation
New legislative requirements (e.g. Capital Requirements Directive and Solvency II) are focusing on the risk sensitivities of how a firm's regulatory capital is determined.
Risk
Firms are being encouraged to incorporate a risk management framework to capital allocation. The framework should address all risk types and not just those against which minimum regulatory capital is mandated.
Stress and scenario testing
Increased emphasis is being placed on the role of stress and scenario testing, with resulting implications for solvency levels within an organisation.
How can we help?
Allocation of capital has to be aligned with business objectives, risk appetite, cost of capital and target return on capital employed, all of which can be a challenge. We can assist you with turning these challenges into strategic outcomes, through the following:
- Providing advice on interpreting and implementing solvency ratio, own funds, large exposure, liquidity and leverage requirements
- Providing advice on Pillar 2 and the Internal Capital Adequacy Assessment Process or FLAOR
- Helping to develop integrated risk and capital management frameworks
- Assisting with implementing regulatory reporting and disclosure standards
- Capital modelling
- Advising on group capital requirements and consolidated supervision
Contact us
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