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Four Out of Five Major Financial Firms Now Have a Chief Risk Officer, Reflecting Tough Regulations, Increased Scrutiny, Deloitte Survey Says

Four Out of Five Major Financial Firms Now Have a Chief Risk Officer, Reflecting Tough Regulations, Increased Scrutiny, Deloitte Survey Says

by Rick Turoczy on January 12, 2005

Global financial services institutions are facing growing exposure to risk from a variety of factors, including mega-mergers, off-shoring, outsourcing, greater regulation, and the need to manage an increased volume of lending. These factors are causing a very large proportion of these institutions — 81 per cent — to establish the position of Chief Risk Officer (CRO), according to Deloitte’s biannual Global Risk Management Survey released today.

The number of large institutions with chief risk officers has increased from 65 per cent since the last survey was conducted in 2002. The survey also shows that three quarters of CROs in financial services firms report to their chief executive or the board of directors. There has also been a 25 per cent increase in board-level oversight of risk management over the last two years.

Despite the increasing emphasis on containing risk, the survey shows, however, that enterprise risk management (ERM) continues to be an elusive goal for many institutions. In fact, less than one-quarter of survey participants say they are able to integrate risk across any of the major dimensions of risk type, business unit, or geography. Their focus in ERM is on measuring economic risks including credit, market, operational, and liquidity. While 38 per cent of respondents say they have integrated the organizational structure required to deal with these risks, only 15-16 per cent reported progress in integrating methodology, data, and systems.

The survey indicates that a tougher regulatory environment and increased scrutiny of financial institutions in the post-Enron business environment have contributed significantly to a greater emphasis on risk management. Reflecting this reality, the Bank for International Settlements (BIS) this year established a new capital adequacy framework for banks commonly known as Basel II, replacing guidelines created in 1988. The new framework significantly updated credit risk measurement approaches and introduced new methodologies for measuring operational risk and related capital charges.

Meanwhile, the Sarbanes-Oxley Act in the United States and similar legislation in other countries has elevated the importance of corporate governance, board oversight, internal controls, and financial disclosures — with the threat of criminal prosecution for non-compliance.

Four Out of Five Major Financial Firms Now Have a Chief Risk Officer, Reflecting Tough Regulations, Increased Scrutiny, Deloitte Survey Says

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