Financial economics and regulatory finance

Financial markets are constantly evolving and the financial decisions that firms, regulators and governments make are of growing importance and complexity. Our team of financial and regulatory finance economists apply the latest economic thinking and analytical tools to ensure that our clients make the right calls on these decisions.

We also work closely with our colleagues in corporate finance, deals and the regulatory economics team, to provide leading insights and knowledge from across the PwC network.

Our team has expertise in:

  • Regulatory finance
  • Capital markets investment assumptions and risk premia
  • Financial market structure and policy
  • Bespoke company financial analysis
  • Disputes support and estimation of damages

Important questions we can help clients to answer

Regulators and regulated companies

Growing media scrutiny has increased the importance of achieving the appropriate balance between risk and reward in regulated industries. Our team has extensive experience in working alongside regulators to develop regulatory frameworks in aviation, energy, telecommunications and water.

We can help you to answer important questions such as:


  • How do we structure the overall risk/reward package for regulated companies?
  • What is the appropriate level of allowed returns for the industry?
    • How do we estimate forward-looking equity returns?
    • How do we account for firm- or sector-specific risks?
  • How can we develop a financial model capable of estimating regulated prices or revenues, or determining financing needs?


We also partner with regulated companies to help them prepare for price controls. We can help you to answer important questions such as:

  • What is the company's cost of capital?
  • How do we present a persuasive business plan to the regulator?
  • How can we conduct a robust financeability assessment to meet the requirements of the regulator?
  • What are the potential risks to the firm and how can we robustly assess them?
  • How will financial markets react to our proposed financial approach?

Investors, insurers and asset managers

Modest growth, negative interest rates and ESG implications are all important themes to consider when allocating capital in today’s global economy. Our understanding of financial markets and expertise in developing global capital market assumptions, can help you to optimise your investment and asset allocation decisions.

We can help you to answer important questions such as:

  • How do we estimate long-term capital market assumptions for global asset classes?
  • What will be the impact of structural themes on economic outcomes and asset returns over the next 10 years?
  • How can we develop investment assumptions for economies with smaller or less-developed capital markets?
  • How do we assess the impact of global macroeconomic scenarios on my investment portfolio?
  • What is the typical rate of return on transport infrastructure projects in developed economies?
  • We’re looking to invest in a high-risk project in a developing country. How do we assess the relevant country specific risks?
  • What is the expected return to UK equity markets in the coming years?

Government and Domestic / International financial organisations

In response to the global financial crisis, there has been a significant increase in the monitoring and regulation of financial markets. Using our rigorous and objective approach, our team can help you to assess these financial and non-financial risks and their respective impacts on market participants. We also advise clients on how financial markets should be structured to create the right incentives for market participants.

We can help you to answer important questions such as:

  • How will adverse economic or financial events impact market participants?
  • How will certain financial risks (liquidity, interest rate etc) impact market functioning?
  • How will non-financial risks (regulatory, legal, operational etc.) impact the market?
  • How can we improve the regulatory frameworks that are currently applied to financial markets? How will regulatory changes impact market functioning?
  • What are the behavioural insights we need to consider to improve outcomes in financial markets? Does the market structure provide the right incentives?


Bespoke financial advice

Applying financial economics within a company is essential to optimising decision-making. For instance, using the wrong cost of capital estimate in financial modelling can lead to a company pursuing value destroying acquisitions, or rejecting investment projects that will add value.

We can help you to answer important questions such as:

  • What is the firm’s cost of capital? And how do we account for risks specific to the company?
  • How should we apply the cost of capital to assess an acquisition or investment project? What is the value of undertaking specific investment decisions?
  • What is the internal rate of return for the project?
  • How can we value the assets of our firm?
  • What are the economic and financial risks facing our firm and how should we assess or quantify these risks?

Legal disputes

We regularly support our clients by providing expert witness advice on financial compensation and damages cases. Our evidence and data-driven approach can often help to tip the balance of a case.

We can help you to answer important questions such as:

  • Were the assumptions used to justify the acquisition appropriate and consistent with market evidence?
  • Did the investment deliver a fair rate of return?
  • What is the appropriate level of damages that we should be seeking?

Case studies

Global asset manager

Our client, an investment firm based in Asia, asked us to develop an evidence pack on capital market assumptions (CMAs) covering 17 economies including large global economies and smaller Asian economies, such as Cambodia. They were interested in 14 different long-term investment assumptions including returns and volatilities for government and corporate bonds, equities and alternative assets. Rather than forming a single point estimate, the client wanted the evidence pack to provide a range of points developed using different approaches.

Our work suggests the long-term return outlook across asset classes remains subdued which will put pressure on the long-term savings industry.

Energy company

Following publication of the RIIO-2 Sector Specific methodology consultation, the network companies were required to develop their responses to this framework before submitting their formal Business Plans to Ofgem in December 2019. Our work primarily focused on providing strategic advice to the client on how to conduct their financeability assessment and position their financing plan with Ofgem. Specific tasks included:

  • A financial stakeholder interview programme to gauge the views of investors on proposed regulatory framework as well as the current and future outlook for the utilities sector
  • Calibrating the balance of incentives, including the return adjustment mechanisms
  • Financeability analysis, including financial ratio calculation and credit rating analysis
  • Risk analysis, including Monte Carlo, to assess the financial resilience of the business
  • Financeability review to ensure the client was compliant with the regulator's guidelines

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