Study Shows Business Performance Matches Regulatory Compliance in Driving ERM
Financial services firms rank performance management and regulatory compliance as equal drivers of enterprise risk management (ERM) systems according to a global survey of 410 financial services executives. Also, most financial institutions anticipate significant business rewards: improved performance management, and reduced capital allocation and credit loss. The study was conducted by Chartis Research and SAS. Although many firms expect ERM to generate significant benefits, only 26% of financial institutions participating in the survey said they had a well-formulated and well-communicated ERM strategy, with a clear timetable for implementation. Even more telling was that 25% of respondents had no current strategy or plans regarding ERM. According to the executives surveyed, data quality and data management continue to be the biggest obstacles to the successful implementation of an ERM system. Traditional silo-based approaches to managing risks are not providing the value that can be realised with integrated and consolidated risk management systems and processes, which result in reduced costs and improved performance. Survey respondents supported linking different risk systems into a single technology environment, providing an enterprise wide, holistic and integrated view of all risks. The survey also found that credit risk management is still the top risk management expenditure priority for most firms, with exposure to credit losses gaining in importance. In addition, 60% of respondents said ERM programs would enable them to reduce their economic capital allocation over the next 24 months, with an average estimated reduction of 8%. The key contributor to this reduction was improved credit risk management. Furthermore, market risk and financial crime have emerged as key priorities. The resurrected focus on market risk is driven by a desire to replace legacy systems that lack scalability and speed. In addition, counter-fraud initiatives have seen an increased investment including areas such as lending, credit/debit card, internal, and insurance fraud. Also, the insurance industry has shown a renewed interest in ERM that is related to the general convergence of insurance and banking sectors and the cross-fertilisation of risk management methodologies.