Yet Canadian companies are struggling to balance sales-driven mindset
with risk-focused culture
TORONTO, June 25, 2012 /CNW/ - Some 73% of Canadian executives have
undertaken measures to reduce their liquidity risk since the 2008
economic crisis, Ernst & Young says.
Against a backdrop of global issues — continuing economic pressures in
the US and Europe, the European sovereign debt crisis and a
fast-changing regulatory environment — banks and insurance companies
globally are reshaping their risk management processes and improving
their methodologies to monitor compliance and test risk appetite.
"For the majority of global banks and insurance companies, increasing
buffers of liquid assets and developing better risk-management
processes, stress tests and methodologies are big priorities right
now," says Paul Battista, Canadian Financial Services Advisory Leader
at Ernst & Young. "The financial crisis really exposed these
organizations' weaknesses and forced them to embed risk appetite into
the core of their business. The challenge for these companies is to
balance growth with a risk-focused culture."
According to Progress in financial services risk management, the third annual study on risk management conducted by Ernst & Young
and the Institute of International Finance (IIF), balancing risk with
growth is challenging, but organizations are learning to adhere to
reformed models of risk appetite and have added new metrics to
realistically assess and measure risk exposure.
Of the 69 global banks and six insurance companies surveyed, 77% are
either in the process of or have finished in-depth reviews to identify
and assess their business risks. According to respondents, revolving
regulatory regimes such as Basel III and the Dodd-Frank Act will fundamentally change their company's business model.
Strides have also been taken to reform stress test models, methodologies
and risk governance structures to really reshape the business and
create a risk culture that the entire organization can adhere to.
Seventy-five percent of respondents have created and implemented new
stress testing in the past 12 months.
Fifty-eight percent have increased their attention to risk culture in
the past 12 months, versus 23% in 2011.
Eighty-seven percent of companies now have separate risk and audit
committees, while shifting roles and responsibilities so that 58% of
chief risk officers (CROs) report directly to the CEO and 90% have
direct access to the board or risk committee.
While most firms are focused on changing their risk management
structure, participants of the study agreed that there are many
challenges to truly embedding a risk culture across the organization.
Most significantly, 73% reported that inadequate systems and data to
capture and report and measure information is a key issue, followed by
63% citing the difficulty of aligning the sales-driven business mindset
with a risk-focused culture.
At a recent Risk and Return Canada conference, Battista added that
several firms have reported changes to the composition of their boards
and senior management teams; setting the tone from the top to visibly
and consistently demonstrate a disciplined attention to risk and
compliance, which in turn will help build a successful risk culture.
"One of the most important changes companies need to adhere to is the
concept that risk is everyone's responsibility, not just the CRO's or
the risk team's," says Battista. "Adapting a risk-focused culture by
training and motivating employees to look beyond adherence to limits
and consider the overarching risk complications is the most important
step. Only then should the methodologies and processes follow."
About the study
Progress in financial services risk management is the third annual study on risk management conducted by the IIF and
Ernst & Young since the 2008 crisis. From December 2011 through March
2012, 75 banks and insurance firms across 38 countries were interviewed
either by phone, online or both. This resulted in 32 interviews with
CROs, 12 interviews with other senior risk executives and 68 online
About Ernst & Young
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