Offering risk management consultancy in Asia – a region with complex, fragmented and sometimes conflicting regulatory regimes – requires any provider to combine deep knowledge of and insight on all of the rules with expertise in quantitative risk management and modelling.
PwC has set itself apart by constantly keeping on top of the regulations and supporting market participants through implementation and system development. With a team of seasoned financial risk experts in Hong Kong, the consultancy has developed strong relationships with both regional and international banks that have benefited from its expertise when dealing with a diverse range of new capital and risk requirements.
“Most global regulatory requirements have been implemented first in Europe and the US, with the more sophisticated Asian regulators following, so we are in a good position to help international and regional banks meet these requirements,” says Brian Yiu, partner in the risk and regulation practice at PwC in Hong Kong.
“The challenge is that banks tend to hire consultants only when they face imminent regulatory requirements and realise that they may not possess enough resources with the right capabilities to get the work done, so deadlines are often very tight.”
Among PwC’s recent successes has been its work on the revised standards on interest rate risk in the banking book (IRRBB), issued by the Basel Committee on Banking Supervision in 2016. With the Hong Kong Monetary Authority having set a deadline of 2019 for adoption of the IRRBB, there has been a rush to get to grips with the rules in a short period of time.
The Basel requirements have more comprehensive expectations for a bank’s management of interest rate risk than in the past, including the development of interest rate shock scenarios and behavioural and modelling assumptions, as well as enhanced disclosure requirements and an updated standardised framework. Many banks have never previously had to perform this kind of behavioural modelling and have sought guidance from PwC.
Our team has some experience in behavioural models and option valuations and we worked very quickly to develop the knowledge and capabilities that were required for an adaptive solution that fits within client architectures
Brian Yiu, PwC
“Our team has some experience in behavioural models and option valuations and we worked very quickly to develop the knowledge and capabilities that were required for an adaptive solution that fits within client architectures. We are currently working with multiple banks of different sizes on IRRBB and are considering several more possible mandates,” says Yiu.
PwC has won business on IRRBB by staying ahead of the regulations, getting to grips with the global and regional standards, and developing its own capabilities early on so that it has been in a position to help banks comply with tight deadlines. Its strength lies also in the fact that its clients comprise both global and regional banks of varying sizes.
“The complexity for banks is that in Asia they will often have multiple countries in their portfolio, each with their own particular requirements. We can help clients to co-ordinate different rulebooks, fine-tune models accordingly and explain the requirements and resources needed to senior management,” Yiu explains.
PwC’s risk consultancy is not only about short-term support in understanding and implementing new regulations, however. Since 2014, it has worked with one of the largest international banks to address the requirements of the comprehensive capital analysis and review (CCAR), a capital planning framework introduced by the US Federal Reserve.
PwC helped the bank to design and implement stress-testing and operational processes in more than 10 countries, leveraging hundreds of risk models, and its success has been validated by a satisfactory CCAR result in consecutive years. While the project began as a seemingly short-term data collection and cleansing exercise, it has developed into a more complex, long-running project.
“We add value by building long-term relationships with clients and demonstrating our commitment to helping them through these challenges with significant senior level involvement. In many cases, clients will engage us for a short-term project that develops and expands as we identify the root cause of a particular problem and the work that is needed,” says Yiu.
Elsewhere, the firm has developed extensive capabilities on the internal capital adequacy assessment process (ICAAP) – a well-known and longstanding Basel II requirement that involves the identification and assessment of material risks and the maintenance of sufficient capital to align with the bank’s risk profile and business objectives.
Multiple banks have sought help from PwC in fulfilling their ICAAP requirements over the years, but in one particular example, a top-tier institution sought greater efficiency and consistency in its ICAAP reviews across multiple locations. Leveraging in-country expertise and previous work with local regulators as well as its experience with ICAAP, the firm was able to develop a cost-efficient framework that would ensure consistency while complying with all local requirements.
“The challenge with ICAAP is that it is a global requirement, but every country has its own peculiarities that must be addressed. We added value for this client by using our local resources to review processes and make sure all of the ICAAPs now meet local requirements while also being consistent with global standards,” says Yiu.