Regulatory pressure is the top challenge facing financial services companies, including insurers, according to “Expectations of Risk Management Outpacing Capabilities—It’s Time For Action,” a survey from KPMG International. In fact, regulatory pressure was consistently one of the biggest threats companies across many industries; in health care, 50 percent of respondents cited government pressure to contain spending as the top risk.
Across all industries, 70 percent of C-suite executives said regulatory changes over the past two years have caused substantial or moderate changes in their risk management and reporting processes, according to the report, and 59 percent of C-suite executives at financial services companies identified regulation as their top threat.
The financial services industry faces a plethora of new regulations, especially in Europe and the United States, where international banks face more than 40-major sets of new regulations that affect everything from how they treat retail customers to the way they trade derivatives.
“We found that risk management is not advancing fast enough at most companies in the face of an array of threats in an increasingly complex global economy,” said Mike Nolan, KPMG International’s global leader for risk consulting. “But companies can transform these challenges into a competitive advantage. All of their competitors are in the same boat, but very few are going to take advantage of the regulatory onslaught to become more competitive. The companies that do will be in a strong position to turn regulatory risk into an advantage.”
Eight-six percent of respondents said risk management is factored into strategic planning decisions; and two-thirds said they would increase investments in risk management as a proportion of corporate revenue in the next three years. Almost half of respondents profess difficulties in understanding their enterprise-wide risk exposure, the report said, and less than one-fifth have developed a formal risk appetite statement, yet this is an important step in risk management.
In addition to clearly defining and articulating the company’s appetite for risk, the report points to management strategies as one way to increase the focus on risk management within a company’s culture.
“Technology is an enabler of the convergence of risk and control functions, but human skills are essential if companies are going to manage the complexity of this kind of convergence,” the report reads. “[B]y including risk management as an important attribute for leadership with the ability to manage risk as part of regular performance reviews, companies can reward employees for prudent decision making, not just for aggressively hitting financial targets.”
Nearly half of the more than 1,000 respondents serve as CEOs or CFOs, the remaining are comprised of chief information officers, chief risk officers, chief audit executives, general counsel and other key officer and board member positions.
