More than Half of Financial Institutions Will Overhaul Risk Management
More than half of the financial services executives say that they have conducted, or plan to conduct, a thorough overhaul of their risk management, including improvements to data quality and availability, strengthening risk governance, moving towards a firm-wide approach to risk, and deeper integration of risk within lines of business, found to a survey by the Economist Intelligence Unit on behalf of SAS.
The survey of 334 financial services executives found that only a third think the principles of risk management in financial services remain sound and are confident that policy-makers can formulate an effective response to the current economic crisis. Only 40% of respondents say that the importance of risk management is widely understood throughout their company, suggesting that more needs to be done to embed a strong culture of risk management in financial institutions.
Survey respondents identified poor data quality, lack of expertise and a lack of risk culture among the broader business as barriers to improving risk management in their organisation. They pointed to greater disclosure of off-balance-sheet vehicles, stronger regulation of credit rating agencies, and the central clearing for over-the-counter derivatives as initiatives thought to be most beneficial to the financial services industry.
Although the crisis has eroded confidence in risk, the survey’s findings underscore the need for financial institutions to weave performance management closely with risk governance. All departments, not just lending, need a clearer picture of risk-adjusted performance and the behaviours that influence it. From marketing to sales, each needs to ensure their strategy positively impacts results and that their actions are not unknowingly contributing to, or hiding risk concentrations.