Risk Awareness Increased Sharply Since Financial Crisis Says EIU Study
Mindset shift needed however to ensure risk culture embedded across the business
SINGAPORE--(BUSINESS WIRE)-- Investment institutions are more acutely aware of the risks they face since the global financial crisis but many still need to improve the way those risks are communicated internally, according to new research by the Economist Intelligence Unit (EIU) commissioned by State Street Corporation (NYS: STT) .
The survey of global asset managers and asset owners found that more than three-quarters of respondents (78 percent) said their organisation had a very risk-aware culture today. This compares with only 30 percent that made risk their highest priority in 2007. This shift represents a significant cultural change for investment institutions. The proportion of organisations placing risk management as their highest priority has more than doubled since before the 2008 financial crisis.
The survey entitled, "Closing the communication gap: How institutional investors are building risk-aware cultures," was conducted in the first quarter of 2013. Respondents included nearly 300 executives of investment institutions - 48 percent of which were asset managers, 35 percent asset owners and 18 percent intermediaries.* Approximately 39 percent of respondents were headquartered in the Asia Pacific region, 33 percent were from Europe and 19 percent from North America.
David Suetens, executive vice president and international chief risk officer at State Street said, "Investors and regulators will be reassured by the survey's conclusion that asset owners and managers have improved their risk awareness 'beyond recognition' since 2008. But a mindset shift still needs to occur at many organisations to improve levels of trust and dialogue between the business and risk functions and ensure they are developing a real culture of risk-awareness across the whole enterprise."
Reputational risk is now seen as one of the top risks for institutions, the survey found. More than half of all respondents (56 percent) ranked reputational risk equally with risk arising from market volatility (market risk) as among their organisation's highest priorities.
However, despite the greater awareness of risk, the study also found a disconnect between business and risk functions and differences of opinion about the role of the risk function at many institutions. The majority of non-risk staff (52 percent) think the risk function exists primarily to fulfill regulatory obligations, while less than a third (30 percent) of risk professionals think this.
According to the report, these findings suggest that risk managers are not fully communicating their mission to the wider organisation and also that the risk function itself is keenly aware of this.
"It indicates a certain amount of frustration from both perspectives, possibly hindering the development of risk-awareness across the enterprises," added Mr Suetens.
The survey also identified the important role played by a senior risk committee or governance body that brings together senior risk, compliance and audit representatives. The survey suggests that these committees are linked with better risk awareness, better quality risk information, better co-ordination between risk, compliance and audit and fewer misunderstandings between risk and business functions.
Wai Kwong Seck, executive vice president and head of Global Markets and Global Services across Asia Pacific said, "Senior risk committees play an important role in improving the risk culture. 83.3 percent of respondents from organisations with strong committees report that risk is given the highest priority, compared with only 64.1 percent of respondents from organisations without them. In fact there is clear evidence across a number of risk measures that strong committees have a tangible impact on closing the communication gap.
"They are also more likely to have their CRO on the executive management board and for the CRO to play a significant role in strategy and business planning. In turn those institutions with a senior risk committee and a chief risk officer sitting on the executive management board believe the risk function helps produce better investment outcomes.
"The survey confirms that a strong risk committee and risk governance closes the communication gap significantly, delivering better investment outcomes and achieving an enterprise-wide culture of risk-awareness," added Mr Seck.
Despite the significant shift in mindset the report acknowledges that closing this communication gap further will ensure that investment institutions can better fulfill their ongoing responsibilities to shareholders, clients and regulators.
To see a copy of the full report please go to http://statestreet.com/vision
* Percentages may not add up to 100 percent either due to rounding or because respondents could pick more than one answer
About State Street Corporation
State Street Corporation (NYS: STT) is one of the world's leading providers of financial services to institutional investors including investment servicing, investment management and investment research and trading. With $25.4 trillion in assets under custody and administration and $2.2 trillion in assets under management at March 31, 2013, State Street operates in more than 100 geographic markets worldwide, including the U.S., Canada, Europe, the Middle East and Asia. For more information, visit State Street's web site at www.statestreet.com.
This AUM includes the assets of the SPDR Gold Trust (approx. $62.7 billion as of March 31, 2013), for which State Street Global Markets, LLC, an affiliate of State Street Global Advisors, serves as the marketing agent.
About the Economist Intelligence Unit
The Economist Intelligence Unit (EIU) is the world's leading resource for economic and business research, forecasting and analysis. It provides accurate and impartial intelligence for companies, government agencies, financial institutions and academic organisations around the globe, inspiring business leaders to act with confidence since 1946. EIU products include its flagship Country Reports service, providing political and economic analysis for 195 countries, and a portfolio of subscription-based data and forecasting services. The company also undertakes bespoke research and analysis projects on individual markets and business sectors. More information is available at www.eiu.com or follow EIU on www.twitter.com/theeiu
The EIU is headquartered in London, UK, with offices in more than 40 cities and a network of some 650 country experts and analysts worldwide. It operates independently as the business-to-business arm of The Economist Group, the leading source of analysis on international business and world affairs.
State Street Corporation
Ric Shadforth, +61 2 8249 1110
KEYWORDS: Asia Pacific Singapore
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