Under pressure from credit crunch, focus turns to risk convergence

  • Share

The credit crisis and resulting regulatory pressure has driven chief operating officers and senior management of financial services firms to focus more attention on risk convergence - the assessment,mitigation and reporting of risk.

Our survey of finance professionals, conducted in partnership with OpRisk & Compliance, asked about the challenges, investments and adjustments these professionals are making to their risk management procedures in pursuit of convergence. While the responses show real progress is being made, specific areas still need improvement.

Increased importance of risk

The survey asked whether the credit crunch has prompted a greater focus on risk.

Increased importance of risk

Investment in controls

The survey inquired about risk investment over the next 12 months.

Investment in controls

Our perspective: The good news is financial firm executives and boards recognize the need to adapt risk programs to regulatory requirements, improve reporting and prevent risk-control fatigue. The bad news is only 12% of respondents say that work is underway - down from 15% in 2007, most likely as a result of restrained spending as a result of the economic downturn.

Obtain convergence buy-in

The survey explored firms’ ability to jointly develop risk convergence programs.

Obtain convergence buy-in

Implementation levels

The survey probed for the level at which risk convergence has been discussed or implemented.

Implementation levels

Our perspective: The survey reveals a gap between ownership and results. Some 19% of respondents this year cited chief executive officers as primary sponsors of convergence initiatives, up from 16% in 2007. Chief risk officers, surprisingly, registered at just 21%, down from 28% in 2007. Directors were also cited at 23% up from 16%.

While this is good news in terms of involvement at the highest levels of the firm, the lack of clear ownership may well account for slow progress. The business-unit model so prevalent in the financial services industry also poses challenges when "jointly" developing risk convergence programs, with only 20% of respondents indicating formal firm-wide discussions within their organizations.