Survey: Financial institutions confidence shaken by economic crisis; drastic risk management reform underway

Better data governance, transparency needed to drive risk-based performance management initiatives

06 May 2009 -  According to a global survey of 334 financial services executives, only a third think the principles of risk management in financial services remain sound and are confident that policy-makers can formulate an effective response to the current economic crisis. The results of the  survey in March 2009 by the Economist Intelligence Unit on behalf of SAS, the leader in  business analytics software and services, focused on enterprise risk management strategies. 

Risk management reform within institutions will be far-reaching and comprehensive according to the survey. More than half of survey respondents say that they have conducted, or plan to conduct, a thorough overhaul of their risk management, including improvements to data quality and availability, strengthening risk governance, moving towards a firm-wide approach to risk, and deeper integration of risk within lines of business.

Although the crisis has eroded confidence in risk, the survey’s findings underscore the need for financial institutions to weave performance management closely with risk governance. All departments, not just lending need a clearer picture of risk adjusted performance and the behaviors that influence it.  From marketing to sales, each needs to ensure their strategy positively impacts results and that their actions are not unknowingly contributing to, or hiding risk concentrations. 

Tower Group Senior Research Director Virginia Garcia echoes this sentiment. “Although technology is not to blame for the widespread financial crisis, rigid technology and business processes have undoubtedly made it difficult for many FSIs [financial services institutions] to respond rapidly and effectively to the financial crisis. This situation reinforces the business case for a more agile and intelligent enterprise architecture to mitigate risk by helping FSIs adjust to volatile business dynamics.”¹

Even though less than one-third of respondents felt regulators handled the financial crisis properly, respondents agreed that transparency needs to be heavily emphasised within proposed reforms. They pointed to greater disclosure of off-balance-sheet vehicles, stronger regulation of credit rating agencies, and the central clearing for over-the-counter derivatives as initiatives thought to be most beneficial to the financial services industry.

Survey respondents identified poor data quality, lack of expertise and a lack of risk culture among the broader business as barriers to improving risk management in their organisation. As noted in past surveys as well, data governance continues to be a fundamental issue for risk management initiatives. Only 40% of respondents say that the importance of risk management is widely understood throughout their company, suggesting that more needs to be done to embed a strong culture of risk management in financial institutions.

“Now more than ever, this survey confirms the need for the players in financial markets to make transparency a major part of a comprehensive overhaul of risk and performance management to make better business decisions,” said Allan Russell, Head of SAS Global Risk Practice. “The key will be investment in a risk infrastructure that supports a holistic view of risk within organisations, embedded within day-to-day operations and overall business strategy.”

 The survey findings were unveiled today at  The Premier Business Leadership Series event in London. Presented by SAS, The Series brings together hundreds of public and private sector attendees to share ideas and knowledge on critical business management issues.

SAS^® for Enterprise Risk Management

Enterprise risk management entails more than balancing risk and reward, and goes beyond regulatory compliance. It embeds risk management into everyday processes at all levels of the organisation in order to truly drive business evolution.

SAS^® for Performance Management helps organisations improve execution and optimise value.  It does this by aligning an organisation toward the same goals, then provides insight into how cost, profit and value flows through the business.

In October 2008, SAS ranked first in operational risk and governance, risk and compliance (GRC) category in  Chartis Research’s RiskTech100 report.

1. TowerGroup. There Will Be Blood: US Financial Services Trends and IT Spending in 2009 and Beyond. Virginia Garcia, Dec 2008.

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