Five years after the global economic meltdown, financial institutions around the world still struggle with managing risk brought on primarily by regulatory uncertainty, according to a report.
Only 15% of financial institutions across the globe have made “substantial improvements toward implementing or enhancing comprehensive enterprise-wide risk management systems,” reveals the study, which was conducted by the Economist Intelligence Unit (EIU) and surveyed 350 senior-level executives at financial institutions around the world.
Only 20% of polled institutions feel they have integrated risk awareness into their corporate cultures.
“Much effort remains to be done on such fundamental elements as integrating risk awareness into corporate cultures, improving risk aggregation and the quality of underlying data, all of which need to occur in a time of belt-tightening and intense competition for resources,” says Cory Gunderson, managing director of global risk and compliance practice at Protiviti, which sponsored the study.
Regulation is a major source of risk for many respondents. Nearly half view increasingly complex regulatory changes as their first risk management priority, with the growing scrutiny from regulators often considered to be more burdensome than the actual regulations and expenses associated with implementing them.
But it’s not all gloomy on the regulation front. Nearly 60% of polled firms admit that tighter regulations provide stronger assurances to customers, which, in turn, create a competitive advantage, says Tim Long, managing director and global regulatory risk management practice leader at Protiviti.
A major obstacle financial organizations face when dealing with risk is not having enough people and time (42%). Lack of appropriate skills is a barrier for 24% and insufficient funding for roughly 25%.
“As enforcement expands and intensifies without a commensurate increase in resources, the devil is in the details,” says Carolyn Whelan, editor at the EIU. “Progress has been made, but the research suggests much more can be done to foster a strong risk management culture across the entire enterprise.”
The study also finds that risk perceptions vary with geography. North American businesses attribute less importance to nearly every risk category compared to their counterparts across the globe.
For example, only one-third of North American respondents list global economic instability as a top-three risk—versus half in both Europe and the Asia-Pacific region. And when it comes to reputational risk, only 20% of North American firms see it as a top priority—compared with 37% of European and 45% of Asian institutions.
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