Deloitte’s eight biennial Global Risk Management survey covered 86 financial services institutions, including major Australia banking and insurance entities, finding risk governance and capital management are becoming a key focus for boards.
Two thirds of banks, insurance and funds management companies reported an increase in spending on risk management and compliance, and almost half of firms surveyed adjusted product lines and/or business activities due to increased regulations.
“Eighty per cent of financial services boards are now actively approving and providing direction on risk policy and risk appetite,” said Peter Matruglio, Deloitte Financial Services Risk leader.
“They are demanding more information and clarity on the risks associated with executive decision making, operational processes and reporting. Ninety eight per cent of company boards or board-level risk committees regularly review risk management reports. This is up by 10 per cent since 2010.
The Australian Prudential Regulation Authority (APRA) has proposed financial institutions set up a board risk committee to provide objective non-executive oversight of the implementation and on-going operation of the institution’s risk management framework, effective 1 January 2014, Mr Matruglio noted.
Major insurers and wealth managers are making the chief risk officer (CRO) a more senior role that is more likely to report into the chief executive, rather than the chief financial officer (CFO), and 89 per cent of participants globally now have a CRO – up from 65 per cent in 2002, Deloitte found.
However, technology is a major concern according to Deloitte, with significant improvements needed to technology used to monitor and manage risk. Less than 25 per cent of institutions rate their technology systems as extremely or very effective, while 40 per cent of institutions are concerned about their capabilities in the management of risk data, the survey found.
“Australian organisations are looking to update their risk systems, not just from a standalone perspective, but more importantly, to integrate them with their finance and other management systems. As Australian institutions upgrade their core systems, the time is opportune to consider integrating risk modules and systems into the new operating platforms,” Mr Matruglio said.
Australian institutions are also currently implementing Basel III requirements, which will benefit liquidity risk, but a majority of global institutions are increasingly confident about their effectiveness in managing liquidity risk, Deloitte found.
Stress testing has also become a “central plank” in many Australian institutions’ risk management efforts, according to Deloitte.
“In Australia, the regulator requires evidence of historical stress testing as well as reverse stress testing. To meet these requirements and embed them into the strategic planning process, financial institutions may need to improve their governance structures and controls over data integrity,” Mr Matruglio said.
