Risk managers in financial institutions across Europe, the Middle East and Africa (EMEA) are seizing the opportunity created by the financial crisis to demonstrate how they create value and are rapidly gaining new-found kudos in the boardroom as a result.
Research published today by Marsh reveals that the role of the risk manager in financial institutions has grown significantly in prominence since the financial crisis, with 68% of respondents stating they now have a higher status within their organisations. The maturation of risk management departments is impacting the level of risk organisations are prepared to take: 34% of survey respondents said board level risk appetites have increased over the last three years, compared to only 18% in 2009.
Marsh’s report also states that a large consensus of risk managers in financial institutions across EMEA (61%) feel new regulation has done little, or nothing at all, to reduce their operational risk exposure. Moreover, only 14% rated regulation as a top risk priority for the next 18 months.
Marsh’s report, New Risk Management Insights for Financial Institutions, details insight from chief risk officers, directors of risk and risk managers from over 120 leading financial institutions across EMEA.
The report also found that risk managers are today more concerned about the threats associated with credit and liquidity risk to their organisations than at any time since the height of the economic downturn. Over two-thirds of respondents (69%) identified credit risk and 56% listed liquidity risk as their top priority risks over the next 18 months, compared to 37% and 22% respectively from Marsh’s 2009 report.
Among the top risk priorities for financial institutions over the next 18 months are:
- Credit risk – 69%
- Counterparties – 15%
- Liquidity risk – 56%
- Market risk – 15%
- Operational risk – 25%
- Protectionism/regulation – 14%
- Interest rate – 24%
- Global economic conditions – 12%
Carrick Lambert, Industry Practice Leader of Marsh’s Financial Institutions Practice in EMEA, commented: “Three years ago, financial institutions were recognising their problems in the wake of the banking crisis and making the resolution of these problems a top priority. Today, our research reveals that boards increasingly recognise that risk management can provide a competitive advantage. With capital now no longer as cheap or as available as in the pre-credit crunch days, good risk management is an essential tool for securing new funds.
“There has been a significant swing towards a more centralised model for risk management, with 30% of respondents describing their risk management structure as managed by a central team, compared to only 17% in 2009. We expect this trend of centralisation to continue, and chief risk officers finally become permanent and influential fixtures on most boards.”
Marc Paasch, Head of Financial Institutions in Marsh Risk Consulting, added: “The financial crisis highlighted fundamental weaknesses in risk management and controls at financial institutions. As the industry strives to repair its battered reputation and restore shareholder confidence, the role of the risk manager cannot be underestimated. Acting as an economic and regulatory monitoring system, risk managers can ‘listen’ to the environment and help the boards of financial institutions identify emerging risks, reduce uncertainty, and therefore optimise their performance.”