Risk management consultant of the year: KPMG

Covid-19’s impact on risk management has been far-reaching: it has disrupted regulatory timetables and forced firms to reassess their operational resilience.

Now, as the world enters the post-pandemic era, there is a lot of catching up that needs to be done. KPMG, with its deep pan-regional expertise, is proving to be the consultant of choice for many of these risk management challenges.

“Covid-19 has obviously had a huge impact [and] has generated a significant demand for our services in some very specific areas, particularly on the credit risk management side,” says Tom Jenkins, head of KPMG’s financial risk management practice in Hong Kong.

The pandemic has also forced regulators to delay implementation of some key regulations, such as the later phases of uncleared margin rules (UMR) and outstanding Basel III regulations, including the fundamental review of the trading book (FRTB).

“As regulators return to a more ‘business as usual’ outlook, we are seeing clients move into a relatively aggressive implementation mode for many of these outstanding pieces of regulation,” says Jenkins.

FRTB

Long before Covid-19 struck, KPMG was spending a lot of time helping clients get ready for FRTB but, in the absence of clear guidance from regulators, it was slow going.

Now that regulators are getting back on track, there is renewed urgency to completing this outstanding piece of Basel legislation.

KPMG currently has more than 20 FRTB implementation projects in the works across the region. Some are long-established projects, which were started before the pandemic. Others were only started recently, with a number of new clients signing up over the past few months. The majority of these projects are based in mainland China, Hong Kong and Korea. KPMG is expecting to see more work coming out of Singapore in the months ahead.

For many banks in the region, particularly those with more complex books, the switchover to FRTB is a significant undertaking.

“We’re helping with everything – from the integration of vendor solution and user-acceptance testing to the validation of pricing models and sensitivity calculations,” Jenkins says.

One of the more complex elements of FRTB implementation is deciding what should be moved over to the trading book and what can stay within the banking account.

“While this might sound relatively straightforward, many of our clients are finding the organisational implications of this challenging due to the need to realign roles and responsibilities … Introducing internal risk transfer can add further layer of complexity,” says Jenkins.

KPMG’s support of the FRTB transition extends beyond just helping clients navigate the process. The consultant has sought to influence how the framework has taken shape in the region.

“Given the number of projects we are doing, we have been able to condense all the industry issues down and discuss these with regulators and industry associations,” says Jenkins.

Operational resilience

The other piece of work that has kept KPMG busy over the past 12 months has been helping financial institutions across the region update and refine their operational resilience programmes. This has become particularly important as market volatility and business disruption has highlighted shortcomings in current business practices.

“Many institutions are moving from a tactical regulatory change approach to more of a strategic lens with a focus on modernisation, and really trying to optimise what the risk function is doing,” says Craig Davis, a partner at KPMG’s practice in Australia. “These organisations want to go beyond the regulatory view of financial resilience to get a much more holistic understanding of their balance sheet and how their business is being run.”

One large project that KPMG recently undertook was for the Hong Kong subsidiary of a mainland Chinese bank, which, spooked by events during the Covid-19 pandemic, decided that an overhaul of its operational resilience framework was in order.

“We have been helping them decide what their tolerance level should be for business disruptions, how to most effectively manage their end-to-end operational processes and what comprehensive scenario stress tests they should be conducting,” says Gemini Yang, a partner at KPMG China.

Like many of the institutions that KPMG is working with, this particular firm had not updated its business continuity programme or operational risk management framework for a number of years.

The project is divided into two parts. The planning phase will last until the middle of 2023, while the implementation phase will last a further two-to-three years.

This is only one example of how KPMG is helping financial institutions update and improve their resilience framework across the region. There are plenty of others.

“Our clients’ risk management functions are increasingly essential to build and secure stakeholder trust. Our consulting model – focused on developing transformative solutions that seamlessly integrate front to middle and back office with the right mix of operating model, process, technology and people – is well-placed to help them,” says Yang.