Financial institutions globally are expecting a wave of new regulations that will require major risk management investments and reforms, according to the results of a survey from global consultancy Accenture published this week.
The report, which surveyed chief risk officers, chief financial officers, and other risk executives from more than 250 of the world’s largest organizations across multiple industries, found that, despite the economic downturn and budget constraints, most financial services firms see an oncoming wave of new regulation and are investing in risk management. Seventy percent of respondents believe regulators are “actively looking at coming up with more stringent compliance requirements,” while 71% have increased or are planning to increase investments in risk management capabilities.
“Financial services risk programs have experienced an unprecedented vulnerability to interrelated events across all risk and asset types,” said Ed Grau, a senior executive and financial services risk expert at Accenture who contributed to the report, noting that risk-based capital allocation decisions, risk based performance measurement, and consistent stress testing across asset classes, positions and business lines must improve in order to ensure appropriate risk.
“Firms will need to bolster their risk management capabilities, which currently are not responsive or flexible enough to meet regulatory needs,” he continued. “Risk must be better aligned to the business strategy and integrated with the firm’s culture and across the various kinds of risk. And risk systems must become more flexible, as regulators increasingly require more specific and detailed information on a firm’s risk profile.”
Survey results suggested that risk management will need to be transformed from a purely compliance function to a value-added capability, with better alignment to the business strategy and integration with the firm’s culture and across the various kinds of risk, according to Accenture. Increasing the integration of risk across all relevant risk types was cited by 39% as key, while only about one-quarter (27%) of respondents have an integrated risk and finance IT architecture.
In the near future, firms are expected to fundamentally change their risk architecture, said Grau. “Simplifying redundant front office systems, creating a single source of position and market data, and standardizing valuation models are the main agenda… [as well as] moving analytics to the front office rather than data to the middle office.” He noted that firms are now leveraging front office analytic technologies and significantly more advanced data management capabilities.
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