Financial services firms boost risk management resources
Wednesday 22 August 2012 — Leading financial services firms have made major changes to their approach to risk management following the global financial crisis, but there is still much to be done to change and embed new methodologies and processes, according to a new report by EY in conjunction with the Institute of International Finance (IIF).
Based on a survey of 75 firms across 38 countries, including Australia, the Progress in Financial Services Risk Management report found financial institutions had made significant progress towards strengthening risk management, but that the complexity of new regulatory requirements were adding additional pressure.
The survey found banks have reworked the structure of their risk management areas, with 87% reporting they have board risk committees, a major change since pre-crisis. The status of CROs has also increased, with 82% now reporting either directly to the CEO or jointly to the CEO and board risk committee.
Banks have also increased the level of resources devoted to risk management. On average, 57% of the firms surveyed had increased the number of staff engaged in their risk management practice over the last year and 36% said they expected to make a further increase in the coming year.
Risk appetite also remains a key challenge for many firms. While most organisations surveyed had established an enterprise-wide risk appetite, many have not yet been able to embed it into their businesses. In fact, only 37% of respondents indicated they had linked risk appetite with day-to-day business decisions.
EY Financial Services Risk Management Partner, Andrew Harmer, says that while Australian financial institutions were generally in a solid position, they were not immune to the challenges presented by the post global financial crisis environment.
“Australian banks are still impacted by the global financial environment, although to a lower degree than some other regions, and it is imperative they continue to strengthen their risk management practices in response to changing regulatory and market conditions,” Harmer says.
“Australian financial institutions are already making good progress in this area. We have seen the CRO role become broader as risks emerge from non-traditional areas, with boards also increasing the focus on the risk agenda. There has also been a similar level of increased investment in stress-testing by Australian institutions.
“These are all positive developments, but there is still more work that needs to be done,” Harmer says.
“The scope, timing and potential impact of continually evolving global regulatory reforms are driving fundamental changes to the way financial services institutions will do business in the future.
“Boards and senior management teams are spending a lot of time and resources to strategically review, assess and, in some cases, fundamentally reshape their businesses to remain compliant in an increasingly challenging regulatory landscape.
“In this environment, the key challenge for Australian financial institutions will be creating the right balance between growth and risk,” Harmer says.
“While new regulatory and compliance changes will need to be properly addressed, financial institutions also need to ensure they are not taking their eyes off their wider strategy and other, more macro, business risks.”
Notes for editors
A copy of the full IIF / EY Progress in Financial Services Risk Management report is available on request.
About the survey
From December 2011 through March 2012, EY, on behalf of the IIF, surveyed IIF member firms. An online quantitative questionnaire was distributed to the top member firms by asset size. In addition, the team conducted telephone interviews with chief risk officers and other senior risk executives of the largest global firms. A total of 75 firms across 38 countries participated in the study either online and (or) by telephone, which resulted in 32 interviews with CROs and 12 interviews with other senior risk executives, and 68 online survey responses. The report was issued under the auspices of the IIF Committee on Governance and Industry Practices, chaired by Rick Waugh, CEO of Scotiabank and Vice-Chairman of the Board of the Institute.
About the IIF
The IIF is a global association of leading financial institutions with over 450 members headquartered in 70 countries.
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