Deloitte releases 2004 global risk management survey results

Faced with growing exposure to risk through mega mergers, off-shoring, outsourcing, more stringent regulations and an increased volume of lending, 81 percent of global financial services institutions have established the position of chief risk officer (CRO), according to Deloitte's 2004 Global Risk Management Survey. That number has increased from 65 percent since the last survey was conducted in 2002.

The survey also shows that three quarters of CROs in financial services firms report to their chief executive or the board of directors. There has also been a 25 percent increase in board-level oversight of risk management over the last two years.

Despite the increasing emphasis on containing risk, the survey shows, however, that enterprise risk management (ERM) continues to be an elusive goal for many institutions. In fact, less than one-quarter of survey participants say they are able to integrate risk across any of the major dimensions of risk type, business unit, or geography.

Their focus in ERM is on measuring economic risks including credit, market, operational, and liquidity. While 38 percent of respondents say they have integrated the organisational structure required to deal with these risks, only 15 - 16 percent reported progress in integrating methodology, data, and systems.

The survey indicates that a tougher regulatory environment and increased scrutiny of financial institutions in the post-Enron business environment have contributed significantly to a greater emphasis on risk management.

"Financial institutions are recognizing the need for strong risk management governance, now more than ever," said Jack Ribeiro, managing partner of Deloitte's Global Financial Services Industry practice. "They are responding to increased expectations from regulators, counterparties, the public, and others to ensure sound governance of their risk management programs."

Edward Hida, partner, Deloitte & Touche, and leader of US Banking Risk Management Services, continues: "While compliance with regulatory requirements is an imperative itself, we see major institutions using this opportunity to transform the way they look at economic capital and even their finance functions.
"A continuing challenge is the applicability and practicality of these efforts for smaller and mid-size institutions that may feel pressure from the development of more sophisticated capital approaches at larger institutions."

Additional survey findings include:
* Operational risk management - according to the survey, operational risk management (ORM) continues to be a relatively new and developing field compared to the more established risk management disciplines, with the majority of respondents still in the beginning stages of implementation. However, the survey shows an increase over 2002 in the number of firms that have established ORM programs. The capability of ORM systems continues to be a challenge for a substantial majority of respondents who indicated that at least some improvement in functionality is needed.
* Risk systems and technology - while information technology is considered to be the key enabler of a risk management architecture, respondents report a host of continuing challenges in developing adequate risk systems. More than half (52 percent) cited a lack of integration among systems as a major concern and 42 percent cited it as a minor concern. Lack of flexibility and scalability as well as performance issues were also noted as key challenges. Improving regulatory related systems capabilities and implementing operational risk management and advanced credit risk systems were the three highest priority items cited by respondents in the systems development and technology area.
* Extended enterprise solutions - when it comes to off-shoring, near-shoring and outsourcing arrangements across a variety of corporate functions, survey respondents reported that information technology and application management was the only area where a majority (61 percent) employed an extended enterprise solution (EES). Just less than half of the respondents use EES for call centres or back office processing.

www.deloitte.com

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•Date: 14th Dec 2004 • Region: World •Type: Article •Topic: Operational risk
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