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risk-based regulation

Risk-based regulation is a novel regulatory approach, which is gaining momentum by the day. Regulators as diverse as the Financial Services Authority, the Environmental Agency and the Housing Corporation in the UK are recent adopters. 

Traditional regulatory models have often been criticised for an inefficient and inflexible 'command and control' style. Risk-based regulation addresses these weaknesses by:
1) relying more on the self-regulatory capacity (i.e. internal control and risk management) of organisations and
2) responding to regulatory problems in a manner proportionate to the risk that the regulated organisations face and pose to their sector.

Hargreaves Risk and Strategy are at the forefront of risk-based regulatory thinking.  We are able to advise regulators on:

Developing a Risk Profile Model
Making or breaking a credible and effective risk-based regulatory approach, the Risk Profile Model should:
. clearly differentiate between the extent the regulated entities pose risk to the regulatory objectives
. draw attention to potential problems arising from the sheer size of the regulated entity
. identify potential problems from firms taking on risky activities
. draw attention to potential problems due to weaknesses in management and governance.

Producing a graphical representation of the risk assessments
Segmenting all regulated entities in a visually graspable manner allows quick reliability checks on the results. It also gives regulators the confidence to discuss the implications with stakeholders.

Designing methods for tracking the overall sector risks
Risk-based regulators would always be one step behind the issues threatening the regulated sector without a more hands-on, real-time and forward-looking approach to those risks that have a macro effect. We assist risk-based regulators in taking a more pro-active role in advising organisations on the existence and development of these risks.

Tools to aid the work of regulators investigating individual firms
We can assist regulators in developing a list of key questions that would assist field officers to work out the risk profile of individual organizations.

These products can be used together to determine the amount, type and focus of regulation required for a particular organisation.


further information

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Hargreaves Risk and Strategy