An increase in risk management and compliance spending is being reported by 65% of the 86 chief risk officers (CROs) polled at banks, insurers, and asset managers as part of the eighth biennial global risk management survey from Deloitte Touche Tohmatsu, but worries persist over the effectiveness of technology.
Increased regulatory scrutiny under stipulations such as Dodd Frank, the European Market Infrastructure Regulation, MiFID II, Basel III and the credit valuation adjustment (CVA) environment are all causing financial institutions (FIs) to elevate their focus on risk management, says Deloitte Touche Tohmatsu in its report.
Other key findings from the eighth biennial global risk management survey entitled ‘Setting a Higher Bar’ include concerns about technology, with just 25% of the 86 CROs polled rating their risk management IT systems as extremely or very effective in data management and maintenance, process architecture and workflow logic or data governance.
Almost half, at 40% of risk professionals polled by Deloitte, are also concerned about their firm’s capabilities in effectively managing risk data and support IT.
Other key findings from the risk report include:
• Fifty-eight per cent of FIs plan to increase their risk management budgets over the next three years, with 17% anticipating annual increases of 25% or more.
• Different sized firms are spending on risk management in different ways. Large firms have continued their focus on distinct areas such as risk governance, capital adequacy and liquidity. In contrast, firms with assets of less than US$10bn are now concentrating on building capabilities.
• Risk management has risen up the agenda in the boardroom, with 94% of company boards devoting more time to risk management oversight than five years ago, and 80% of chief risk officers reporting directly to either the board or the chief executive (CEO).
• The impact of increased regulation is having a significant effect on business strategy and the bottom line; 48% of firms have had to adjust product lines and/or business activities, compared with 24% in 2010.
• Progress in linking risk management with compensation has changed only incrementally since 2010. Currently, 55% of institutions incorporate risk management into performance goals and compensation for senior management, which is little changed from 2010.
“The financial crisis has led to far-reaching changes in FIs’ risk management practices, with stricter regulatory requirements demanding more attention from management and increasing their overall risk management and compliance efforts,” said Edward Hida, Deloitte’s global lead for risk and capital management services.
“That said, risk management shouldn’t be viewed as either a regulatory burden or a report destined to gather dust on a shelf. Instead, it should be embedded in an institution’s framework, philosophy and culture for managing risk exposures across the FI.
“Knowing that a number of regulatory requirements remain in the queue, FIs have to be able to plan for future hurdles while enhancing their risk governance, analytical capabilities, and data quality efforts today. Those that do will be well placed to steer a steady course though the ever-shifting risk management landscape.”