Heightened regulatory scrutiny and greater concerns over risk governance are forcing financial institutions (FIs) to elevate their focus on risk management, according to eighth biennial global risk management survey issued by Deloitte Touche Tohmatsu.
The firm reports that FIs are increasing their risk management budgets, with 65% reporting an increase in spending on risk management and compliance, against 55% in 2010. Further key findings from the Deloitte report, entitled ‘Setting a Higher Bar’ and which surveyed 86 global FIs, 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, the firm’s global lead, 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.”
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