Risk management reforms continue after financial crisis

Monday 18th April 2011
In light of the financial crisis, the banking industry has put in place wide-ranging programmes to address weaknesses in risk management, including governance, incentives and risk measurement, according to a survey by Ernst & Young.

Banks in the US and in Europe, some of which sustained the most substantial losses in the crisis, have launched the most aggressive programmes and banks felt that substantial progress has been made.

"However, this is a journey and the reforms - although well underway - will take time to complete," Ernst & Young said.

The survey has been conducted on behalf of the Institute of International Finance, whose Committee on Market Best Practices published an extensive set of recommendations for the industry in July 2008.

Ernst & Young stated that its new survey – the second to gauge progress across the industry since the IIF’s 2008 report – highlights the emphasis being placed on risk governance and risk management.

Most organisations reported that boards of directors are now playing a more prominent role and senior managers together with the boards are setting a clearer direction.

The firms surveyed emphasised that the power and authority of Chief Risk Officers and their teams was elevated, notably in such key areas as business strategy and planning, risk appetite definition and management, product development and compensation.

Patricia Jackson, Ernst & Young's Head of Financial Regulatory Advice, Europe, Middle East, India and Africa (EMEIA), who directed the survey, said: "Despite impressive progress on many fronts, the reform programmes are far from complete.

"Several important reform areas show less progress than others. A central finding of our survey is that still more needs to be done by many firms to strengthen the core risk culture in particular the embedding of a clear risk appetite throughout the organisation.

"The changes required to institute a strong risk culture – where risk is the business of everyone from the board to the front-line – are fundamental and far-reaching for many organisations. Shifting the cultural mindset is by definition a long-term process of change requiring on-going commitment of senior management time and resources to embed it fully."

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Mike Jones