Risk management for financial service companies

How do you measure exchange rate fluctuation risks in the banking book? What are the regulations on liquidity and operational risks? PwC provides the expertise and tools financial service providers need to review and adjust their total risk management systems.

What will be required of risk management in the future as a result of Basel II, Minimum Requirements for Risk Management (MaRisk) and Solvency II? Requirements for total risk management will be influenced by a number of factors that are themselves constantly changing, so that companies require continual updates to make assessments of the changes and ensure their risk management processes are effective.

With the new version of MaRisk from December 15, 2010, the German Financial Supervisory Authority (BaFin) has once again intensified the demands being made on financial institutions. Only those who have implemented the requirements by December 31, 2011, will continue to be in possession of a proper business administration in accordance with Section 25a I of the German Banking Act. At the same time, MaRisk also covers the Basel II requirements aimed at financial institutions (Supervisory Review Evaluation Process).

For institutions, it will indeed be a challenge to implement these requirements across the wide range of business activities while keeping in mind all the differences in type, scope, complexity and risk levels.

PwC’s wide expertise in the commercial, public and cooperative banking systems enables it to support businesses to meet these requirements using the following individual solutions:

Part 1 - Quick check, project assistance, MaRisk quality assurance

PwC analyses the risk management processes in place using standardized analysis tools and provides support for implementation, project set up and assistance. We can also provide expert opinions on specific issues that may arise at this stage.

Part 2 - Capacity to bear risk, implementation of risk mitigating diversification effects

PwC's experts investigate the overall risk profile, what risk assessment methods are used and how appropriate systems for setting risk parameters within your business activities are. At the same time they analyse the appropriateness of processes for covering potential risks.

A particular challenge in this respect is considered to be the implementation of risk mitigation diversification effects. These have to be derived from the specific data of a respective financial institution and must take into account economic cycles. We will support you in the choice of the correct process for your institution and in the verification of adequacy.

Part 3 - Corporate risk management system

The corporate risk management and control system is analysed to identify significant risks at corporate level, including German company law concepts such as the degree of control exercised by the parent company and how corporate risk management principles are developed.

Part 4 - Business administration compliance

PwC's experts analyse and restructure key management guidelines in line with your individual approach and MaRisk's requirement for a framework of systematic instructions (first-level documentation).

Part 5 - Analysis of internal and external risk reporting

We provide an independent analysis of the management information system in line with international and national regulatory requirements and commercial law requirements under IFRS and German Commercial Code (HGB).

Part 6 - PreCheck 44

The implementation of MaRisk is being checked more and more frequently by special audits by the German Financial Supervisory Authority (BaFin) in accordance with Section 44 German Banking Act. The BaFin has regular grounds for complaint. Some of these can be avoided by good preparation. Use our experience from assistance and support with special audits in order to be able to identify the critical points prior to an audit.

PwC also provides risk management in the following areas:

• Audit using actuarial mathematical modelling
• Certification of valuation algorithms
• Expert opinions on trade law/regulations for product suppliers
• Intensive training in financial products under IAS 39
• Approval of IAS 39 projects
• Introduction of the qualified approach under the German Derivative Ordinance
• Project assistance: rating/scoring models, valuation models for derivatives
• Models for measuring credit risks