PwC report critical of bank risk management strategies

Many financial institutions are not managing the full spectrum of risks effectively, according to a new report from PricewaterhouseCoopers and the Economist Intelligence Unit (EIU). The report said financial services companies should re-evaluate their risk management structures in favour of a more practical and holistic approach.

The report, 'Taming Uncertainty: Risk Management for the Entire Enterprise', claimed there is a tendency for risk to be split into the separate areas of credit, market and operational risk. Banks then set up departments to deal with each, rather than accepting that many of these risks are interlinked, according to Diana Chant, a partner in PricewaterhouseCoopers’ Canadian financial risk management practice.

The report said a forthcoming survey of financial institutions showed most respondents are focused on financial, predictable and quantifiable concerns, with credit risk dominating institutions’ thinking. Reputational risk is notably absent from survey responses.

PwC claimed institutions need to follow the lead of some companies that have started to embed risk management throughout the organisation, and look beyond quantifiable risks.

The report recommended that a number of factors need to join together to create the right framework for holistic risk management.

These include board-level management seizing the risk management agenda and making risk management a strategic priority, plus the establishment of procedures to ensure that an awareness of risk filters through to corporate governance, decision-making, external reporting and compensation.

The report also said people and systems must be put in place to deliver risk information to management.