Speical report from The Banker

A single view of risk and return

Financial firms need to establish a single view of risk and return in their organisations, a view aligned with business needs, that meets external requirements, and that is positioned to create value.

Financial institutions are facing a turning point in the management of risk. There are several factors in play. The size, shape and increasingly global reach of major players, coupled with consolidation and evolving product complexity, create a challenging backdrop.

External imperatives, driven most obviously by regulation but also from shareholder expectations and rating agency pressure, turn up the heat on finance and risk functions. This combination is placing serious pressures on financial institutions to change the way they manage risk across the organisation, and to drive for greater effectiveness and efficiency. “From compliance to performance” has become the mantra in the industry.

Regulatory pressure has come from what is often referred to as ‘the perfect storm’ – the coincidence of Sarbanes-Oxley 404 requirements, Basel II for banks and corresponding regulation for insurers, and a welter of disparate initiatives from financial supervisors aimed at better accountability over regulated activities. As a result, many financial institutions typically have multiple frameworks in place for collecting essentially the same data, and insufficient clarity about who does what in relation to the management of risk in the organisation.

 

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