Regulatory Capital

Regulatory capital is a mandatory cost of doing business.

It has the advantage of:

  • Helping to safeguard global financial systems,
  • Protecting creditors.

It has the disadvantage of:

  • Tying up firms’ assets,
  • Reducing the amount of business that firms can conduct,
  • Increasing workload and cost.

What can be done to reduce reportable exposure and regulatory capital requirements?

  • Efficient application of netting under master agreements to reduce reportable exposure;
  • Efficient application of collateral to reduce reportable exposure under master agreements;
  • Netting/collateral enforceability flag management in systems that feed into regulatory capital calculations;
  • Efficient use of supporting legal opinions in respect of netting and collateral enforceability;
  • Proper use of contract data to fully understand the implications of key clauses that impact exposure and regulatory capital calculations.

Case Studies

  • We have helped Tier 1 and Tier 2 investment bank clients to reduce their regulatory capital by using a combination of our derivatives’ expertise, data management abilities and technology;
  • Conducted remediation exercises to ensure efficient use of netting of exposures under master agreements in order to reduce regulatory capital;
  • Conducted remediation exercises to ensure validation of collateral enforceability under master agreements, in order to reduce calculation of exposure and regulatory capital;
  • Standardised jurisdiction based entity type taxonomies to aid the application of netting and validation of collateral enforceability.