Risk management evolving from regulatory burden to strategic core competency
Risk managers are increasingly viewing risk management as a strategic core competency rather than a regulatory obligation, according to a survey by the Professional Risk Managers’ International Association (PRMIA) and SunGard.
The survey captured the views of more than 200 banking risk managers across the world about their collateral and exposure management priorities.
Stress testing capabilities ranked as a lower than expected priority, behind collateral consolidation and asset and exposure valuation. This is particularly surprising in light of the impending European Central Bank comprehensive assessment, due to be published in November 2014, which will disclose those under the baseline and adverse scenarios of stress tests. This could suggest that while regulatory requirements remain important, banks are beginning to focus more on longer term risk management capabilities.
In addition to stress testing, the calculation of regulatory limits exposures also ranked as a lower than expected priority.
Over 96 per cent of respondents confirmed that combined credit risk and collateral management capabilities were important, further highlighting how firms are increasingly taking a more longer term view of risk management rather than a short-term, tick box exercise.
Other priorities for risk managers included centralisation of customer information to drive increased accuracy, improved monitoring of counterparty risk, enhanced reliability of risk data and better single borrower exposure and monitoring internal limits.
“These key findings highlight an important step change for the industry. While it is surprising that regulatory requirements such as stress testing rank as a lower than expected priority, this also suggests that the practice of risk management is evolving to become more strategic and operational. This is particularly evident when looking at today’s collateral and exposure management priorities. Taking a longer-term view towards risk will undoubtedly enable banks to successfully navigate the more complex regulatory landscape, but also lay the foundations for an effective risk strategy which drives competitiveness from compliance,” says Sven Ludwig, regional director of PRMIA and senior vice president, risk management and analytics, SunGard.
“Collateral is one of the key focal areas to mitigate systemic risk. Strategic investments here can improve all three levels of shareholder value: revenue enhancement, cost containment and capital efficiency. More specifically, banks that improve their collateral and exposure management capabilities can more effectively manage lower interest rate risk and therefore enjoy higher equity leverage. We see a continued focus among banks on enhancing these capabilities, as they increasingly recognise their importance in helping to better manage risk in the long-term,” says Jochen Schneider, chief operating officer, SunGard’s retail banking business.
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