Playing With Fire?

Current risk management in financial services does not deliver the business value executives expect, according to a survey by PricewaterhouseCoopers and Economist Intelligence Unit. With the focus on regulations such as Basel II and Sarbanes-Oxley waning, firms could be left exposed, PwC cautions.

The study, which surveyed 400 senior financial services executives, reveals that the risk management function, despite heavy investment, often is disengaged from the rest of the business. More than half of respondents say there is no structured assessment of risk in some critical business processes within their organizations, and risk managers often are not involved in key business activities, including mergers and acquisitions, pricing, and recruitment and compensation policies.

In addition, two-thirds (66 percent) of survey participants believe their companies need to view risk management as a more-strategic function to add greater value to the business. Perhaps most troublesome, fewer than one in 10 (7 percent) survey respondents believe that risk management is "very effective" at enabling managers to make business decisions.

According to PwC, financial services companies would benefit if risk managers were involved more in strategic decisions and if there were common tools to assess risks across a range of operations. Further, greater business value could be realized by integrating risk management more tightly with other functions, especially finance.