Consultancy Services

Embracing transformation

Consultancy can be a great way for a financial services firm to gain a set of skills, or deeper understanding of a subject area, where it perceives it has an existing gap. RiskLogix Consultancy aims to provide firms with deep insights into regulatory requirements as well as good and best practice within the industry, to deliver robust practical outcomes that can be sustained over time.

Below are three examples of the kind of work that RiskLogix Consultancy undertakes.

Rebalancing risk appetite

Today, many firms have risk appetite statements that are focused solely on quantitative metrics. Best practice for risk appetites requires the inclusion of qualitative statements as well. For example, a bank may wish to obtain guidance and direction from a consultant, to support the operational risk team in developing qualitative statements. This has the dual benefits of enabling the team to acquire and retain knowledge while reducing the consulting cost.

A potential outline of the work involved might include:

  • Sharing with the client various practices for the measurement of risk appetite, including indicating where these are good practice or best practice.
  • Designing possible enhancements to the client’s risk appetite methodology, including a revised methodology for the identification and assessment of qualitative risks.
  • Examining with the client the above possible enhancements, taking into account discussions on good practice and best practice.
  • Drafting a revised approach to the client’s risk appetite methodology and discussing it with the client.
  • Presenting the revised approach to senior management.

In such a case, the team would benefit from a more complete understanding of what best practice risk appetite statements and governance looks like. As well, the team would work together to develop an agreed revised risk appetite approach, incorporating both qualitative risk appetite and quantitative risk appetite.

Reviewing ICAAPs and ILAAPs

Many financial organisations struggle to produce robust examples of ICAAP and ILAAP statements, which are required under the Capital Requirements Directive (CRD) IV within the EU. RiskLogix Consultancy has worked with clients to review, in an internal audit style, their ICAAPs and ILAAPs, with a view to:

  • Assessing the governance around the preparation of the ICAAP and ILAAP.
  • Determining the adequacy of both documents against international best practice, regulatory requirements and guidance.
  • Reviewing the integration of the ICAAP and ILAAP with other processes.
  • Conducting a quantitative analysis of risk quantification methodologies used.

RiskLogix Consultancy’s subject matter experts bring deep knowledge of central banking and regulatory requirements, gained through extensive consulting, training and contact with many government, quasi-government and commercial institutions. This experience enables RiskLogix to benchmark firms’ ICAAP and ILAAP documents against international best practice as well as regulatory requirements and guidance. RiskLogix can also discuss other sources of good and best industry practice, helping firms to be sure that the outcomes of the consultancy work reflect their requirements and are neither too comprehensive nor too minimalist.

Creating Useful Scenarios

Often, financial services firms feel that scenario analysis isn’t useful – but this can arise from the fact that they are running single parameter stress tests within their operational risk capital calculation work. Firms find that these single parameter stress tests bear little resemblance to reality and therefore can fail to engage the businesses.

Some RiskLogix Consultancy clients want to move to using multi-parameter scenarios, which could be developed by the business and therefore would be naturally owned by the senior management.

In these kinds of engagements, RiskLogix Consultancy works with the operational risk and risk management teams within an organisation to facilitate workshops with senior management, the first line of defence and the second line of defence to develop exceptional but plausible scenarios. These are then developed by the client (rather than consultant) and are therefore fully embedded from the start. The scenarios are then applied to the client’s risk profile, resulting in agreed scenario-adjusted risk profiles. Many firms choose to use the RiskLogix mathematical models for capital calculation purposes.