Reputation biggest worry for asset management CROs

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LONDON - Reputational risk is the biggest concern for UK asset management chief risk officers (CROs), according to new research published by Ernst & Young. A poll of 23 CROs from some of the largest asset management firms in the UK confirmed reputational risk, the hostile regulatory environment and greater client scrutiny were their foremost concerns.

Many say they are not being given the information they need to adequately advise and protect their business nor are they being included in business processes, which is adding to their apprehension.

"Asset management firms are facing increasingly severe risks as the recession continues," says Anthony Kirby, director in the Ernst & Young regulatory and risk management practice. "Failing to get CROs involved in new product development or the strategic direction process could result further down the line in disgruntled clients and investors, or worse. CROs play a hugely important element in 'fine-tuning' products. Their role is really business critical in the current environment."

On a more positive side, most firms were discovered to be undertaking more frequent counterparty risk assessments, with many trying to centralise counterparty limit setting. The research found that many risk managers are moving beyond conventional credit ratings, instead using credit default swap prices to gauge risk.

Respondents also identified a number of barriers that need to be overcome before real improvements can be made in risk management. Insufficient clarity from regulators, with conflicting regional and global legal consequences, is a common concern for all in financial services at the moment. However asset managers are also suffering from a lack of suitable, qualified staff who can communicate with fund managers, the sales and marketing teams and control functions; a lack of maturity in data models, reliable historic data and the difficulty in collecting accurate new data; and cultural issues within funds, which includes lack of management support.