Regulation top concern for banks, but stakeholders view Canada as best prepared to deal with risks: PwC

Biennial survey also identifies technology and the macro-economic environment as key issues

TORONTO, May 7, 2014 /CNW/ - Banks and their stakeholders--both in Canada and worldwide--see regulation as the biggest risk to business, according to the 2014 Banking Banana Skins report, released today by the Centre for the Study of Financial Innovation in association with PwC.

In the biennial survey, which identifies the top concerns of 650 bankers, observers and risk managers in 59 countries, Canadian respondents rank technology as their second biggest concern, with risk being driven by the expansion of mobile banking, new payment technologies and the increased data requirements arising from the regulatory environment. The number one issue in 2012 – the macro-economic environment—sits third and criminality fourth. Interest rates, which rank only 12th globally, round out the top five.

"Regulation being the top risk comes as little surprise, especially given that regulatory requirements have increased exponentially since the economic crisis began," says Diane Kazarian, National Financial Services Leader at PwC Canada. "In particular, stakeholders are concerned about keeping up with new rules, as well as the time and cost implications of compliance.

"In terms of other risks, interest rates are an issue, as banks and consumers alike have become accustomed to a low-rate environment and may have difficulty adjusting should rates return to their previous levels."

However, the general consensus in Canada is that banks are able to deal with the risks they face. On a scale of one to five (five meaning most prepared), Canada's average preparedness score of 3.52 from tops all countries surveyed, and is well above the global average of 3.04. In comparison, the UK and the US, both of whom were hit much harder by the recent recession, sit at the bottom of the list at 2.70 and 2.48 respectively.

Using the same scale when asked about anxiety surrounding the identified risks (one meaning low anxiety), Canada's 3.08 score again sits below the global average of 3.12. Again, Canada also fares better than the US (3.21) and the UK (3.20).

"Due to strong profitability, a conservative approach to banking and sound contingency planning, Canadian banks appear well prepared to manage the challenges and risks they face," says Ryan Leopold, Financial Services Partner at PwC Canada. "Their forward-thinking approach to identifying risks has put them in a strong position to adjust to what may lie ahead."

Other global highlights from Banana Skins include:

  • Political interference is cited as the number two concern worldwide, and is seen to add costs and constraints to the sector. In particular, concerns are particularly strong in Europe,  where extensive measures have been proposed or adopted at both the EU and national levels to make banks safer.
  • Anxiety about the outlook for banks has started to decline for the first time in seven years, suggesting that the operating climate for banks is finally turning.
  • By region, the responses show concern about regulation and politics to be strongest in Europe and North America. The top concerns in the Asia Pacific region focus more on the macro-economy and the risk of sharp changes in interest rates.

Follow PwC on Twitter at @PwC_Canada_LLP and on Facebook at www.facebook.com/pwccanada.

About PwC Canada

PwC Canada helps organizations and individuals create the value they're looking for. More than 5,700 partners and staff in offices across the country are committed to delivering quality in assurance, tax, consulting and deals services. PwC Canada is a member of the PwC network of firms with more than 184,000 people in 157 countries. Find out more by visiting us at www.pwc.com/ca.

© 2014 PricewaterhouseCoopers LLP, an Ontario limited liability partnership. All rights reserved.

PwC refers to the Canadian member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

Banking Banana Skins 2014
(2012 rankings in brackets)


Canada


World

1

Regulation (3)

1

Regulation (6)

2

Technology risk (13)

2

Political interference (5)

3

Macro-economic environment (1)

3

Macro-economic environment (1)

4

Criminality (21)

4

Technology risk (18)

5

Interest rates (19)

5

Profitability (7)

6

Political interference (8)

6

Pricing of risk (11)

7

Quality of risk management (9)

7

Credit risk (2)

8

Shadow banking (-)

8

Corporate governance (9)

9

Credit risk (5)

9

Criminality (24)

10

Change management (18)

10

Capital availability (4)

11

Profitability (7)

11

Quality of risk management (10)

12

Pricing of risk (14)

12

Interest rates (17)

13

Social media (-)

13

Back office (13)

14

Liquidity (2)

14

Change management (15)

15

Reliance on third parties (23)

15

Liquidity (3)

16

Back office (11)

16

Sales and business practices (20)

17

Human resources (17)

17

Emerging markets (22)

18

Emerging markets (27)

18

Derivatives (8)

19

Derivatives (6)

19

Social media (-)

20

Capital availability (4)

20

Shadow banking (-)

21

Equity markets (22)

21

Management incentives (14)

22

Currency (20)

22

Currency (19)

23

Commodity markets (28)

23

Human resources (28)

24

Business continuation (16)

24

Reliance on third parties (29)

25

Social sustainability (29)

25

Social sustainability (25)

26

Corporate governance (12)

26

Equity markets (21)

27

Management incentives (15)

27

Commodity markets (26)

28

Sales and business practices (26)

28

Business continuation (12)

SOURCE: PwC (PricewaterhouseCoopers)

For further information: Emily Abrahams, T: +1 416 814 5734, Email: emily.r.abrahams@ca.pwc.com; Kiran Chauhan, T: +1 416 947 8983, Email: kiran.chauhan@ca.pwc.com

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