Enterprise risk management gaining ground: Deloitte survey
Heightened regulatory scrutiny and greater concerns over risk governance have led financial institutions to elevate their focus and attention on risk management, a new global survey from Deloitte Touche Tohmatsu Limited (DTTL) finds. In response, banks and other financial services firms are increasing their risk management budgets and enhancing their governance programs.
According to Deloitte’s eighth biennial survey on risk management practices, entitled ‘Setting a Higher Bar,’ about two-thirds of financial institutions (65 percent) reported an increase in spending on risk management and compliance, up from 55 percent in 2010.
A closer look at the numbers finds, though, that there is a divergence when it comes to the spending patterns of different-sized firms. The largest and the most systemically important firms have had several years of regulatory scrutiny and have continued their focus on distinct areas like risk governance, risk reporting, capital adequacy, and liquidity. In contrast, firms with assets of less than $10 billion are now concentrating on building capabilities to address a number of new regulatory requirements, which were applied first to the largest institutions and are now cascading further down the ladder.
“The financial crisis has led to far-reaching changes in financial institutions’ risk management practices, with stricter regulatory requirements demanding more attention from management and increasing their overall risk management and compliance efforts,” said Edward Hida, DTTL Global Lead, Risk & Capital Management Services. “That said, risk management shouldn’t be viewed as either a regulatory burden or a report destined to gather dust on a shelf. Instead, it should be embedded in an institution’s framework, philosophy and culture for managing risk exposures across the financial institution.”
“Knowing that a number of regulatory requirements remain in the queue, financial institutions have to be able to plan for future hurdles while enhancing their risk governance, analytical capabilities, and data quality efforts today,” explained Hida. “Those that do will be well placed to steer a steady course though the ever-shifting risk management landscape.”
The majority of institutions participating in the survey (58 percent) plan to increase their risk management budgets over the next three years, with 17 percent anticipating annual increases of 25 percent or more. This is not a trivial matter as 39 percent of large institutions – particularly those based in North America – reported having more than 250 full-time employees in their risk management function.
Risk management moves up the boardroom agenda
Alongside increased spending, risk management has also significantly risen up the agenda in the boardroom. According to the survey’s results, 94 percent of company boards now devote more time to risk management oversight than five years ago, and 80 percent of chief risk officers report directly to either the board or the chief executive officer (CEO). Additionally, 98 percent of company boards or board-level risk committees regularly review risk management reports, an increase from 85 percent in 2010.
“Regulators have been focusing more and more on the role of the board of directors in risk governance, including their approval of the firm’s risk appetite and risk policies, overseeing their implementation by management and increasingly looking to understand the challenge that the board makes in its oversight of the financial institution’s risk management of key issues,” said Hida.
Other major findings in the survey include:
Deloitte’s survey assesses the risk management programs, planned improvements, and continuing challenges among global financial institutions. The eighth edition surveyed chief risk officers – or their equivalent – at 86 financial institutions, and represents a range of financial services sectors, including banks, insurers, and asset managers, with aggregate assets of more than $18 trillion. The survey was conducted from September to December 2012.
The report can be found online at www.deloitte.com/us/globalrisksurvey
•Date: 2nd August 2013 • World •Type: Article • Topic: Enterprise risk management