A Survey of Global Risk Management in a Changing Environment

After the global financial crisis that was characterized by heightened systematic risk and high market volatility, many economies and financial markets appear to be strengthening.  However, serious concerns still exist.  Organizations are not returning to the same environment, but rather to one that is filled with constant change. 

Therefore, many organizations are reassessing their risk management models, and even revising their business models.  Deloitte Touche Tohmatsu Limited recently conducted a survey in an effort to understand the state of risk management in this new environment.  Participants in the survey included a wide variety of 131 financial institutions from around the world, with aggregate assets of more than $17 trillion. 

Below are lists of some of the key findings of the survey that are broken down by categories.  There are several additional findings that are discussed in the white paper, which are applicable to various types of organizations.

Risk Governance

In response to recent concerns regarding risk governance, many organizations were found to have:

• Improved the process of reporting risk information to the board of directors and other committees
• Enhanced risk limits and updated risk appetite strategies
• Increased the involvement of the board of directors
• Aligned risks and incentives

Enterprise Risk Management (ERM)

Some key findings with respect to enterprise risk management in the changing environment were:

• The adoption of ERM has increased sharply
• ERM programs have been modified to include new areas such as litigation risk
• The challenges of implementing an effective ERM program have increased
• The reporting of risk information to the board has become more frequent

Regulation

Financial institutions, specifically, are facing a changing regulatory environment, which have affected their current state of risk management.  The survey focused specifically on the implementation of Basel II and the impacts that new requirements have on financial institutions and their business risk models. 

Key findings in the regulatory environment include:

• Most financial institutions were far along with the implementation of Basel II
• Recent Basel II rule revisions are expected to have a significant impact on such areas as an organization’s expansion strategy, business model, and capital allocation
• The practice of utilizing the calculation of economic capital by financial institutions is still far from universal

Management of Key Risks

Significant findings of the how key risks have been managed by financial institutions include:

• Greater assessment of a broad array of risk types in addition to traditional risk categories
• Implementing a stronger liquidity risk management function
• Meeting more frequently with regulators to discuss issues that are effecting their institution

Original Article Source: “Global Risk Management Survey 7th Edition,” Deloitte, 2011