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RISK MANAGEMENT Financial firms fight to recalibrate risk With the GFC having prompted a sweeping reassessment of risk management, many financial institutions are still struggling with a raft of cultural, technological and organisational challenges. There is no question that the global financial crisis has exposed fault lines in the management of risk across many sectors of the financial services industry. Faced with a massive erosion of confidence among key stakeholders, and the prospects of difficult times ahead as the industry seeks to rebuild itself, risk professionals are now questioning the very foundations of risk management. According to findings from a new SAS-sponsored Economist Intelligence Unit (EIU) report, titled After the Storm: A new era for risk management in financial services, less than half of risk professionals in the industry believe the principles of risk management remain sound. Clearly, this suggests that fundamental changes to risk management are required – not just better execution. On the upside, many risk professionals seem to recognise this, with 53 per cent of the 334 senior risk managers questioned in the EIU study indicating that they have conducted, or plan to conduct, a big overhaul of their risk management in response to the crisis. The findings also highlight an acute lack of understanding between the risk function and the broader business, with just 40 per cent of respondents believing that the importance of risk management is widely understood throughout the business. In their efforts to overhaul risk management, key areas of focus include the strengthening of risk governance, a move towards a firm-wide approach to risk, the deeper integration of risk within the business and improvements to data quality and availability. Respondents state that the need for reform is being driven, in particular, by executive management, but that regulators are also starting to apply the pressure. “The financial crisis has prompted a wholesale reassessment of risk management in many financial institutions as “Firms are adopting a range of new ideas and approaches, but face a number of important cultural, technological and organisational challenges before they can successfully recalibrate their risk management” they come to terms with a dramatically changed environment,” says the report’s editor, Rob Mitchell. “Firms are adopting a range of new ideas and approaches, but face a number of important cultural, technological and organisational challenges before they can successfully recalibrate their risk management.” Other findings from After the Storm: A new era for risk management in financial services, include the following. Retreating from risk Only about one-third of executives believe the outlook is positive for their business in terms of either revenue growth or profitability over the next year, and less than one-third say they are seeing confidence return. This erosion in confidence is having a dramatic impact on the kinds of business that financial institutions are willing to carry out, with many retreating into familiar, domestic areas. Increased transparency Asked about the initiatives they thought would be most beneficial to the financial services industry, respondents pointed to greater disclosure of off-balance sheet vehicles, stronger regulation of credit rating agencies and the central clearing of over-the-counter derivatives as being three among the top four that have the greatest potential benefit. Although these are wide-ranging activities, there seems to be a common theme across all of them – namely, the requirement for greater transparency and disclosure to facilitate the more effective management of systemic risk issues. Supervisory response Just three in 10 respondents are confident that policy-makers can formulate an effective response to the crisis. Regulators, in particular, are singled out as being a potential weak spot, with less than one-third rating their handling of the financial crisis as good or excellent (a lower proportion than for either central banks or governments). R 28 RISK August 2009
ACI 13th Annual Conference Tuesday & Wednesday 13 & 14 October 2009 Hilton Hotel, Sydney SAVE $500 if you register for the Early Bird rate by the 4th of September 2009 GROUP DISCOUNTS AVAILABLE Register 6 delegates and save over $600 for group bookings. Earns 12 CPD POINTS Doing More With Less Our expert speakers include: ACI invites you to attend our 13th Annual Conference – the premier compliance and risk event of 2009. In light of the recent economic challenges ACI’s has developed a unique conference program to explore the ways in which organisations can build a robust compliance framework in preparation for pending regulatory changes maximising the effectiveness of compliance and risk systems for the long term. The leaders in compliance and regulation will provide guidance on how to increase your efficiency in compliance by doing more with less. Our program of expert speakers and practical workshops will help delegates to: Maintain compliance awareness with the organisation and key stakeholders during tumultuous times Increase stability and transparency through the use of compliance data and metrics Manage the wave of regulatory change whilst ensuring the organisation meets its business objectives Assess the changing power of third party regulators in varying industry sectors Engage proactive and strategic business solutions within the area of compliance Ensure effective risk management in today’s environment Maintain a rigorous compliance program in the face of change for the benefit of both the business and consumers David Landau, Chief Compliance Officer USA, Starbucks Coffee Company The Hon. Nick Sherry, Assistant Treasurer Vikram Singh, Chief Compliance Officer, GE Capital, Asia Pacific Greg Kirk, Senior Executive Leader – Deposit takers, credit and insurance providers, ASIC Sarah Court, Commissioner, ACCC Thomas Story, CEO a/c, AUSTRAC Charles Littrell, Executive General Manager, Policy, Research and Statistics, APRA To register: visit www.compliance.org.au or email events@compliance.org.au or call +61 2 9290 1788 Alumni Sponsor Silver Sponsor Bronze Sponsors making effective compliance easy
Page 1 and 2: MINIMISE | MITIGATE | MANAGE MAGAZI
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Page 6 and 7: NEWS COMPILED BY MARK PHILLIPS Mark
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