New York — Eighty percent of board members of U.S. financial services firms feel they could do more to reduce the chance of future industry instability, according to findings of a survey released by PricewaterhouseCoopers' Financial Services Industry Group. However, the survey also revealed a desire for greater transparency to accurately measure exposure to risk.
The survey of more than 300 board members, two-thirds of whom sit on the audit committee of financial institutions, was taken between September 22 and October 4, and was completed at the 2008 PricewaterhouseCoopers Financial Services Audit Committee Forum, the industry's largest gathering of financial services audit committee members.
The leading topic of discussion at the Forum was the current market environment and what can be done to avoid future market turbulence. More than 95% of the board members asked said they believe greater clarity is required as it relates to what is and what is not reported on an organization's balance sheet, and 77% said existing valuation tools are not robust enough.
Among board members surveyed:
• 65% of respondents feel that corporate boards lack the tools and transparency to properly assess risks and exposure
• 88% said the scope of risk management for financial institutions does not adequately account for their exposure to off-balance sheet entities
• Almost unanimously, 96% of board members said they think that financial institutions that retain risks to off-balance sheet entities should in the future publicly disclose aggregate information on a regular and timely basis, including the quantity and sensitivity to credit, market and liquidity risks and any changes to those risk exposures over time
Due to the evolving market conditions, boards are reassessing their priorities and areas of focus to ensure their organizations are taking the necessary steps to be prepared for any additional near- and long-term market volatility. When asked to rank their four top priorities over the next 12 months, audit committee board members ranked them as follows (in order of importance):
• Enterprisewide risk management and buy-in from business lines
• Systematic risk management across the industry
• Transparency and financial reporting
• Internal controls and tightened margin/collateral controls
When asked to describe the current financial crisis, 30% of respondents view the situation as a reminder of the need for more disciplined risk-taking during periods of growth. Another 20% say it is a reflection of too much focus on the short-term (investing, reporting, compensation). Thirteen percent found the positive in the tumultuous economic climate, and regard the situation as an opportunity that will eventually strengthen the financial services industry. Finally, one in four sees this as an example of the urgent need for modernization of the financial services regulatory framework to reflect today's global, integrated capital markets system.
The greatest challenge to the financial services industry over the next 12 months will be regaining investor confidence, according to 41% of respondents. Nearly as many (36%), on the other hand, feel the greatest obstacle will be accessing capital. Other responses included responding to government intervention in the industry (15%) and layoffs (3%).
"As we continue to navigate these unpredictable market conditions, audit committees, now more than ever, need to have access to the information and tools necessary to do their jobs effectively," says James Flanagan, leader of the U.S. financial services industry practice of PricewaterhouseCoopers. "It is imperative to the future success of the industry that we continue to work even more collaboratively with our board members to ensure we are focused on the priorities at hand: To return to and maintain market stability."
Source: GlobeNewswire Inc.
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