Key regulatory challenges facing EMEA risk professionals: Banking risk & regulatory developments

Key regulatory challenges facing EMEA risk professionals: Banking risk & regulatory developments


With the regulatory landscape constantly evolving since the 2007/2008 financial crisis and a number of regulatory demands being placed on banks since then, The Center for Financial Professionals have researched extensively over the past few months with a number of risk experts within the financial industry, to assess the key banking risk and regulatory challenges taking place over the next year.

As the third research report in the series, this piece will focus on the key challenges risk professionals are facing over the coming year within banking risk and regulation as a whole, such as IFRS 9, stress testing, and governance. The first report concentrated primarily on The Fundamental Review of The Trading Book (FRTB) and key areas of focus, including its overall implementation challenges, timing constraints and the move from VaR to expected shortfall, whilst the second report focused on Liquidity Risk & Capital Management, including challenges such as intraday liquidity, TLAC & MREL and the Net Stable Funding Ration (NSFR). This piece, similar to the previous two, will reflect findings from our research, which will be articulated during our 5th Annual Risk EMEA: Banking Risk & Regulation Summit, taking place in London on May 24th and 25th 2016. The summit brings together 50+ CROs and Heads of Department from institutions across EMEA, beginning with keynote plenary sessions and CRO panel discussions in the morning before dividing into three concurrent streams across both days: Stream One on The Fundamental Review of The Trading Book, Stream Two on Banking Risk & Regulatory Developments and Stream Three on Liquidity Risk & Capital Management.

The agenda can be viewed at:

One of the main challenges within banking risk and regulatory developments that came out of the research was a look towards the implementation of IFRS 9 and understanding its key deliverables. Having been around since 2014 when the International Accounting Standards Board (IASB) released the publication of IFRS 9, risk and accounting professionals could perhaps be forgiven for taking a relaxed stance on its implementation. However, the standard is set to come into full effect on January 1st 2018 and with parallel runs for the larger institutions taking place just next year, banks are currently at the most intense stage of preparation for this new regulatory standard. Whilst many institutions have come to terms over the past year with what IFRS 9 actually is, how to implement the standard and the methodological challenges within IFRS 9, there are more practical nuances that banks are finding testing. As the largest area of IFRS 9, impairment still brings up many challenges, and this coupled with the practical implications of implementing IFRS 9 and the effects of the standard on other business areas, mean there are still many open issues. As an example, the secondary impacts on other business areas of the implementation of IFRS 9 requirements came out as a key area of focus, particularly how IFRS 9 will integrate with other areas such as BCBS 239, stress testing and forecasting. This convergence with other areas of the business will prove a challenge for IFRS 9 and accounting professionals, as well as stress testing experts for example, who will need to come to terms with another regulatory standard integrating with their own area. Overall it is paramount that organisations prepare meticulously for the soon-to-be enforced new regulatory standard.

A further key challenge that has been regularly articulated as a key banking risk and regulatory focus area is stress testing. Since the financial crisis stress testing has been increasingly used, predominantly in the US, but also in the last few years in the UK and Europe, as a key tool in examining the vulnerabilities in banks balance sheets and their ability to withstand adverse economic scenarios or shocks. The theory around the purpose of stress tests is simple enough, as they allow supervisors to assess banks resilience to ensure whether or not they are sufficiently capitalised to withstand such adverse scenarios, in the event that one does actually occur somewhere down the line. However, the practicality of actually running a stress test is not so straightforward, particularly running a stress test from its beginning to end point and the process banks goes through. How do banks turn a stress testing scenario into a viable scenario that can be easily understood for instance? Stress testing scenarios that are produced by supervisors are designed for all banks taking part in the stress tests, but each bank has a unique structure to it. It can therefore be harder for one bank to turn a stress test scenario into a viable scenario in comparison to another bank. Not only this, but it can be challenging to craft a scenario into something that can actually be modelled. It is all well regulators’ giving banks a scenario to test their resilience to, but actually modelling this to see how the scenario would play out is a different story. Another challenge is then actually deciphering whether there are credible management actions that can be taken that would lessen the impact of that particular scenario occuring. Whilst stress testing in theory works really well, in practice it is almost evolving into an art as much as a science.

Finally, an area that risk professionals’ highlighted as another focal point was governance and particularly reviewing governance processes across the institution and incorporating effective structures. With the Senior Managers Regime coming into effect on 7th March 2016 this answered a lot of questions into who was accountable for a lot of the decision-making within banks and the consequences of decisions resulting in a firms failure. However, embedding a culture of effective governance into a bank as a whole and across project categories is a far more difficult challenge, for example over the years practitioners have struggled to get buy-in from senior management and involvement in running stress tests. This is just one example, but buy-in from senior management at relatively early stages of projects would improve the completion of exercises in a more credible way. Overall embedding more effective governance throughout the firm is always an area that can be improved, whether that is better documentation at all levels or a more embedded governance culture from top to bottom.

In its entirety, Stress Testing, IFRS 9 and Governance are just some of the subject areas that came out as key challenge areas within banking risk and regulation during our research. To hear industry discussions around these topic areas and more, join us at The Center for Financial Professionals’ 5th Annual Risk EMEA Summit, taking place in London on May 24-25th. Stream Two will be solely focused on Banking Risk & Regulatory Developments, with presentations and panel discussions on the challenges discussed in this report as well as many more.

For full information visit

For further information, please get in touch with a member of the team on +44 (0) 207 164 6582

Leave a Reply

Your email address will not be published. Required fields are marked *