Risk Middle East: Abu Dhabi's Toor sees risk execs reporting to regulators

Risk managers should have a direct reporting line to regulators, said Harvey Toor, chief risk officer at sovereign wealth fund Abu Dhabi Investment Council, at the Risk Middle East conference in Bahrain today.

In his executive address to the conference, which is twinned with Hedge Fund Review's Middle East Summit, Toor argued: "Regulators need to be able to ask dynamic questions and make dynamic assessments. They are hindered by the convoluted way in which information reaches them." He pointed out that most reporting received by regulators is usually massaged through multiple levels of an organisation, removing much of interest and value. What regulators see in the end is bland information not particularly useful for understanding risks that could affect either the individual firm or have systemic implications, he claimed. "The upshot is that the regulators get very, very little."

Toor said regulators need a direct channel to risk teams. He added "it would not only provide better understanding, but also strengthen the position of risk teams" within their own organisations.

One argument against this is that the small trickle of information flowing to the risk teams would cease completely, Toor conceded, as organisations sought to prevent difficult or negative information reaching the regulator.

To counterbalance this, Toor suggested an arrangement similar to that used by banks to manage equity analysts. Equity analysts are paid by banks, but are rated by the industry through services and publications. Banks then use these ratings to determine pay, bonuses and sometimes ongoing employment. Toor suggested regulators and other stakeholders, such as investors, could rate banks by the quality of the risk information they provide and the quality of their risk teams.

But even this radical solution wouldn't be enough. Toor also maintained regulators need larger budgets, as well as better incentivised and trained staff. They also require improved global co-ordination among regulators, communication that reflects the dynamism and international quality of the markets, and globally harmonised reporting.

Reforms such as these "would strengthen risk units' authority and help them enforce best practice", Toor concluded.

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