Prudential risk and regulation

Understanding prudential risk and regulation

Prudential risk and regulation are pivotal in safeguarding the financial industry and protecting markets. By managing these risks and maintaining adequate resources, financial institutions contribute to the overall stability of the financial system.

What is prudential risk?

Prudential risks for a regulated firm are those that have the potential to undermine its financial stability, which in turn can erode confidence in the overall financial system and harm consumers. These risks come in various forms, including credit, market, capital liquidity and operational.

What is prudential regulation?

Prudential regulation is a critical component of financial oversight. It requires regulated firms to actively manage risks and maintain adequate capital and liquidity cushions, as determined by specific capital and liquidity EU requirements. This is achieved through the implementation of limits on concentration risk (or large exposures), along with comprehensive reporting and public disclosure requirements. Additionally, prudential regulation involves stringent supervisory controls and processes.

Navigating prudential risk and regulation in financial services

Prudential regulation remains a driving force in shaping the strategic direction of banks, investment firms, insurers, electronic money institutions and other regulated entities. The ability of senior management to demonstrate the firm’s resilience through sound risk management practices remains a key priority for EU regulators. However, adhering to the evolving landscape of regulatory changes and ever-expanding obligations is a significant challenge for these institutions, given the multitude of new rules and reporting requirements issued by EU, UK and Irish regulators.

How Forvis Mazars can help you

Our experienced team comprises seasoned professionals with backgrounds in risk management, compliance, and regulatory fields.

Several members of our team have a proven track record of successfully completing Central Bank assessments for pre-approval controlled functions (PCFs) and thus understand the complexities of meeting ongoing regulatory and risk compliance.

Our experts have a deep understanding of current regulatory, risk and compliance issues financial institutions face and what is needed to ensure they meet their regulatory requirements. We help you navigate the complex financial services regulatory landscape by leveraging our extensive experience working with both clients and regulators.

Our prudential risk and regulation services

Regulatory authorisations

• End-to-end regulatory licence support and interaction with the Financial Conduct Authority (FCA) and Central Bank of Ireland (CBI).
• Facilitating regulatory authorisations for banking, MiFID, insurance and EMI licensing.
• Assessing regulatory obligations.
• Assisting in drafting business plans and financial projections.
• Evaluating regulatory license requirements.

Regulatory reporting

• Expertise in interpreting and implementing regulatory reporting requirements.
• Building regulatory reporting target operating models.
• Expertise in drafting interpretation documentation based on regulatory guidance.
• Thorough documentation of reporting processes and procedures.
• Development and review of reporting controls.
• Review and resubmission of regulatory returns.
• Providing outsourced regulatory reporting services.

 Regulatory services

• Conducting gap assessments against regulation and industry best practices.
• Regulatory due diligence as part of a corporate finance deal.
• Assisting in capital and liquidity planning.
• Documenting procedures, policies, and remediation activities.
• Support for Remediation Management Plans (RMPs).
• Offering recommendations based on peer insights.

Risk services

• Reviewing or developing prudential risk management frameworks, risk policies and risk registers.
• Documenting prudential processes, controls, and control identification.
• Drafting or calibration of prudential risk thresholds, limits or indicators.
• Aligning operations with the prudential regulatory framework.
• Offering relevant corporate governance expertise.
• Providing training services.
• Drafting and reviewing Recovery, ICAAP, ILAAP, OCIR, and wind-down planning documents.

Compliance services          

• Development or review of compliance universes and obligations register.
• Development or review of fitness and probity processes.    
• Documentation or review of outsourcing and remuneration.
• Providing subject matter experts to support or undertake compliance monitoring reviews. 

Contact us

For expert help in navigating the current prudential regulatory environment and safeguarding your regulated entity, contact  Chris Monks, Head of Prudential Risk.