Financial institutions have scope for improvement in risk management, says PwC

Leading financial institutions are moving towards a more holistic and integrated approach to risk management, but need to continue to improve their risk management processes, according to a new survey from financial services firm PricewaterhouseCoopers (PwC).

PwC said half the survey participants have made a senior appointment to oversee enterprise-wide risk, and more than 50% have revamped policies for the authorisation of risk-taking to ensure closer alignment with the organisation’s strategic objectives. However, just under half the respondents remain dissatisfied with the measurement tools at their disposal, and 85% see aggregation of data across business lines as an area for improvement.

As a result of its findings, PwC recommends that financial institutions must assess the balance between risk and return, showing greater appreciation for the risks to their franchise and shareholder value. Senior management must then convert this assessment into a corrective action plan and focus on accurate forecasts, stress testing and reporting, PwC added.

Hans-Kristian Bryn, global risk management partner at PwC in London, said the survey illustrates that drawing a complete picture of risk appetite and exposure is clearly a daunting task, even for pioneering institutions. “With the forthcoming implementation of the Basel II Accord, which will require banks to put aside capital to cover operational risk, institutions need to tighten their risk management systems,” Bryn said.

The survey of enterprise risk management was conducted among chief risk officers at 14 of the world’s leading financial institutions, and is a follow-up to a study launched by PwC in July 2002, entitled ‘Taming Uncertainty: Risk Management for the Entire Enterprise’. The study stressed that many financial institutions are not managing the full spectrum of risks effectively.