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.