Reviewing the impact of Brexit on liquidity risk and potential changes to business strategy to stay ahead

Reviewing the impact of Brexit on liquidity risk and potential changes to business strategy to stay ahead

By Phil Headley, Managing Director, Regulatory Reporting, Mizuho

Can you please tell the Risk Insights readers a little bit about yourself, your experiences and what your current professional focus is?

PH – My background is predominately regulatory and financial accounting. My role covers the regulatory reporting aspects of Mizuho International plc and of its subsidiary in Frankfurt. Key risk factors I report cover capital, liquidity adequacy, leverage and large exposures. In addition I support business planning requirements, what if analysis and regulatory change as necessary.

Current areas of focus are our March year end, the first reporting cycle of our new subsidiary in Frankfurt and business planning of new activity/products. I work closely with Front Office, Treasury, Risk Management and Group (Tokyo) stakeholders.

What, for you, are the benefits of attending a conference like the Liquidity Risk Management Forum and what can attendees expect to learn from your session?

Quite simply I see this as one stop forum that will enable me to keep up to date will current industry themes and topical issues.

In your opinion, how can we look to effectively stay ahead on potential changes to business strategy due to the impact of Brexit?

I think that we need to embrace the change and challenge ourselves and operating models to assess how Brexit may create opportunities to improve our own strategy and supporting processes eg Brexit strategy may help determine the optimal allocation  of a scarce liquidity resource to a specific regional or product.

What are the key considerations that need to be made when setting up subsidiaries and intra group flows?

There are various considerations here when deciding upon the level of capital and liquidity to be deployed in the subsidiary; eg where will this come from and what impact will this have on the parent entity. For example the parent may have the benefit of a surplus liquidity profile now but this could become trapped in the future when provided to a subsidiary. Consideration needs to be given from an ILAAP perspective on the level of future transferability between entities and timing thereof.

How do you see the impact of liquidity risk evolving over the next 6-12 months?

The focus of regulators upon liquidity risk remains high eg the PRA recently published CP6/19 focusing upon Pillar 2. Consequently firms will need to ensure that their own risk management processes, governance and procedures are fit for purpose to ensure that they remain in compliance.  In addition firms will need to keep a close eye upon Brexit related impacts especially a hard Brexit scenario and plan accordingly.