Banks globally are continuing to take a short-term view when it comes to risk management priorities, which is impacting future competitive advantage and profitability warns SunGard.
The software and technology services group surveyed 760 risk professionals across 60 countries, to discover current executive level risk management priorities and concerns. Key findings of the survey include:
- C level and management concerns towards risk and regulations appear to be reactive and short-term: Nearly 30% of respondents are concerned with current regulatory and economic uncertainty compared to concerns relating to having the right in-house, risk management expertise and cultural challenges in aligning the front line with risk-taking goals, which are among the lowest at approximately 7%.
- Changing priorities suggest reactive risk management planning: Only two of ten risk priorities – liquidity risk management and risk appetite framework – maintained the same ranking among global institutions in 2013 compared to 2012. Capital planning is ranked by these firms as the second from last priority, having been one of the top three last year. The priorities of US firms changed most in the area of capital adequacy assessment, with economic capital falling from the top priority last year to number eight. The top four 2013 global risk priorities are liquidity risk management, regulatory capital adequacy, credit portfolio optimisation and risk appetite.
- Smaller banks lag larger counterparts in risk management progress: Fifteen per cent of US firms with under US$10bn in assets have no plans to develop a stress-testing process compared to all institutions with US$10bn to US$50bn in assets, which have either completed a stress test already or expect to develop one in the next 12 months. All banking institutions in the US with more than US$50bn in assets have completed an enterprise-wide stress test.
The latest findings tally with the results of another recent study undertaken by SunGard and the Professional Risk Managers’ International Association (PRMIA) of 375 buy side risk professionals from 60 countries. It found that the frequently changing role and remit of risk management is driven by current regulatory uncertainty, instead of long-term, strategic risk management goals for the organisation.
Brian Traquair, president, SunGard’s capital markets business, added: “Turbulence in regulatory change is shaping short-term attitudes to risk management, which could impact future profitability in the financial industry. At a time when risk management budgets are increasing to respond to regulation, firms must begin to adopt a long term approach to risk and compliance to help drive competitive advantage and future revenue. Those that continue to view risk management as a tick box exercise may struggle to successfully compete in the new, regulatory driven era of financial services.”