Global firms are investing more time, effort and energy in managing
non-financial risks, according to the sixth risk management survey 1 conducted by the EY and Institute of International Finance (IF).
Survey respondents including chief risk officers and other senior executives at 51 banks in 29 countries suggest banks have made dramatic shifts in their attention to risk culture in the past year. The move follows a number of
well-publicised conduct and compliance failures that have resulted in huge financial and reputational costs. Almost two-thirds of survey participants believe internal oversight and controls are to blame for these losses.
Since the financial crisis, regulatory fines2 and the need for banks to keep their litigation reserves topped up has resulted in higher non-financial costs and decreased return on equity. Investors are demanding that banks reduce their costs in order to increase returns, and banks are responding by creating a culture that promotes individual responsibility and accountability. 77% of respondents, an increase of almost 10% on 2014, stated that accountability amongst front office staff is a top priority for their company.
Other widespread initiatives the survey suggests firms are implementing to improve risk management and risk behaviour include:
- Taking a more granular approach by breaking non-financial risks into sub-risk types such as conduct, compliance, reputation, money laundering and systems
- Adopting a more proactive, rather than reactive, approach to assessing risk failure, with many performing scenario analysis to better determine non-financial risk
- Acquiring new processes to manage conduct risk. This has seen many firms adopt strategies such as exiting certain markets and re-engineering and modernising their IT systems3. Investing more in integrated information systems that manage risks, control costs and improve customer-facing activities is a common trend amongst forward-thinking banks.