Operational Risk Management Tough in the Face of Regulatory Change

24 October 2012

Investit recently reported that regulatory change programmes would be among the top priorities for 85% of investment managers in 2013. New research published by Investit this week, shows that for 75% of firms the emerging and still unclear regulations are placing strain on the operational risk function.

To comply with the deluge of regulations efficiently and on time, Investit has found that the operational risk function has three main challenges to overcome:

1. 57% of investment management firms reported that they lack sufficient staff to support the operational risk function; yet only 14% of firms are hiring for these positions.

2. Firms are struggling to get the data they need to fuel operational risk exposure calculations.

3. 77% of firms indicated operational risk accounts for 5-to-8% of their total operating costs. These costs are set to rise in the face of regulatory change and in the future firms will need to include operational risk management costs when evaluating new strategies, mergers, acquisitions, or global expansion.

Furthermore, though firms suggest confidence in their ability to manage operational risk associated with internal fraud, execution, delivery, processing and disaster recovery, they are less confident in their ability to manage operational risk associated with clients, products and business practices – three areas where many pending regulations focus.

Respondents agreed that strong operational risk management enhances profitability. However it is clear from the challenges above that firms have a long way to go in order to meet the needs of the regulation while building an efficient function.

The research titled ‘Operational Risk Management: Challenges & Solutions’ published this week, focuses on showing investment management firms how to optimise their operational risk management capabilities to ensure that they can efficiently and effectively support growth, and both current and future business initiatives. Investit has also described the key success factors for creating a strong and flexible operational risk framework.

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