Survey: Financial institutions regaining confidence, but barriers to risk management remain
Regulation uncertainty, lack of risk expertise, infrastructure issues plague organizations
CARY, NC - Banks and insurers are increasingly optimistic and have come far in strengthening risk management. Yet, regulatory compliance may distract attention from emerging risks while the prevalence of a silo-based approach at several organizations hampers risk management at an enterprisewide level. So finds a survey of 346 senior risk management executives in the financial services industry conducted in February 2010 by the Economist Intelligence Unit (EIU) for SAS, the leader in business analytics software and services.
With 75 percent of respondents confident about revenue growth and 68 percent positive on the prospects for profitability, confidence levels have doubled since the survey for last year’s EIU report. But complacency is still a risk. Respondents cite uncertainty over future regulation as the main barrier to effective risk management. For example, banks face tighter capital and liquidity buffers under proposals dubbed the “Basel 3 rules.” The demands of regulatory compliance could eclipse a risk manager’s focus on day-to-day risk management.
Although 60 percent of respondents in the EIU survey have a clear risk strategy, many see gaps in risk expertise, which claimed three of the top four focus areas for addressing shortcomings. This is especially true for board members who need sufficient information on risk to challenge and question executive management in setting overall risk appetite. Also, report survey respondents, stress testing is the area where there is the greatest need for expertise after compliance and governance.
Silo-based approaches to risk management still plague financial institutions. Fewer than half of respondents believe they understand how risks interact across business lines. Poor department communication hampers effective risk management. Many institutions need to strengthen risk management programs to meet more diverse and frequent reporting requirements from the board: only 47 percent say they can provide timely and relevant risk reports to their boards.
Enterprise risk management remains a work in progress in the banking and insurance industries. A common denominator in enterprise risk management surveys over the years is the dissatisfaction with data quality and availability, a view that’s echoed in this year’s survey too. Only 39 percent of respondents believe they are effectively collecting, storing and aggregating data. Four out of five companies surveyed are increasing investment in data quality and integrity. Over-reliance on risk models and problems with data that populate those models are judged as key failures in financial risk management.
“Financial institutions need to respond to evolving opportunities and challenges in risk management and effect change that impacts both staff and systems across group and business lines,” said David Rogers, SAS Global Product Marketing Manager for Risk. “Progress requires an integrated risk data infrastructure with timely access, the ability to measure exposure and risk across all risk types and books of business, and incentive distribution for consistent optimization of risk-adjusted returns throughout the organization.”
Additional focused sector reports from this survey, covering insurance, retail banking and investment banking/commercial banking, are scheduled for release in June 2010.
Enterprise risk management and SAS®
SAS Risk Management for Banking and SAS Risk Management for Insurance are new 2010 offerings from SAS that help institutions tackle enterprise risk management. SAS Risk Management for Banking provides a complete, integrated solution, including risk data management and reporting, asset and liability management, market risk, credit risk, and firmwide risk management. SAS Risk Management for Insurance is a comprehensive solution for performing risk analysis and risk-based capital calculation for insurers.
In November 2009 SAS was ranked the top company in Chartis Research’s RiskTech100 TM . SAS placed in the Leaders quadrant of the Magic Quadrant for Operational Risk Management Software for Financial Services by Gartner Inc. in September 2009.
SAS is the leader in business analytics software and services, and the largest independent vendor in the business intelligence market. Through innovative solutions delivered within an integrated framework, SAS helps customers at more than 45,000 sites improve performance and deliver value by making better decisions faster. Since 1976 SAS has been giving customers around the world The Power to Know®
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