Risk management needs to be improved within financial services, IIF claims

26 May 2010

Risk management processes and governance within the financial service industry need to be strengthened if future credit crises are to be avoided, a new report has claimed.

Research undertaken by the Institute of International Finance (IIF) proposed a number of changes to the regulation of global banking to address concerns over institutions deemed ‘too-big-to-fail’.

The study called for the introduction of resolution regimes, which would lead to financial losses being carried by shareholders and unprotected creditors rather than the taxpayer.

Further recommendations included ensuring effective resolution planning is in place and allowing the authorities to have effective powers of “early intervention” in the case of ailing firms.

Peter Sands, group chief executive at Standard Chartered and chair of the IIF’s Special Committee on Effective Regulation, said: “The top priority has to be to strengthen the global system’s ability to avoid failures.”

“We need to build a more robust system and this demands continued further improvements in risk management and governance in banks, enhanced well-balanced regulation, a renewed focus on effective supervision, and sound macro-prudential oversight. “

He added: “Authorities need to be provided with the full range of powers necessary to protect the public interest and this includes the power to intervene at an appropriately early stage when a firm is in difficulty.”

The group represents more than 400 financial institutions from across the world.

By Jim Ottewill

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