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.
- 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.