Asia financial houses confused on RM

A survey revealed surprisingly contradictory views about risk management from C-level management in major financial institutions in Hong Kong.

The independent survey showed much confusion amongst those managers responsible for assessing the risks of their organisations. One finding was that respondents believe that whereas risk exposures in their sector in the past two years have increased significantly, the level of risk within their own organisation has changed less visibly. 67% said that they would not change their risk-taking propensity, and 11% even increased their risk appetite.

When it comes to internal risks, respondents rated compliance, HR recruitment, and information system and data security as the top three significant internal risk exposures. With regards to external risk exposures; customer satisfaction, product/market, legal, and financial markets (i.e. exchange rate risk, interest risk) were cited as the top four external threats to financial institutions.

The survey was conducted by Hong Kong Baptist University’s Centre for Corporate Governance and Financial Policy and risk consultancy, Asia Risk,

questioned over 60 financial institutions including commercial banks, investment banks, fund houses and asset management companies.

Other findings showed that although many institutions dedicate substantial resources to risk management, there is still room to improve, as only:

70% employ a chief risk officer (CRO)

“The growing recognition of the systemic nature of risk means that financial institutions need to pay greater attention to the array of significant risks beyond those traditionally considered.

Dr. Alan Waring, chief executive of Asia Risk

67% have an internal audit function

60% have a risk management committee

59% have an audit committee

Studying respondents’ knowledge about risk management models: 63% and 76% recognized Basel II and HKEx’s Code of Corporate Governance Practice respectively, while only 40% of respondents recognised the Sarbanes Oxley Act (SOX) and only 22% know about Risk Management Standards such as AS-NZ 4360. For those who said they recognized such codes and standards, they reported that their organisation’s level of compliance is generally high. Further, 70% believed that compliance with Basel II and/or SOX fulfils much or most of all requirements of enterprise risk management (ERM).

The majority of respondents (92%) believed that it would take less than 6 years to fully embed a ‘culture of responsible risk-taking’, with more than 50% believing it should take 2-4 years.

Dr. Alan Waring, chief executive of Asia Risk, remarked: ‘The growing recognition of the systemic nature of risk means that financial institutions need to pay greater attention to the array of significant risks beyond those traditionally considered. Hong Kong is one of the world’s major financial centres and is poised to play an even greater role in global business including China. Improved risk management in such organisations, backed up by a culture of responsible risk-taking, is vital to protect the interests of investors, shareholders and other stakeholders as well as Hong Kong’s reputation and image’.

‘The survey revealed insufficient attention being paid to a number of risk exposures and risk management requirements by financial institutions. However, many of these institutions have shown that they believe that their sustained risk management efforts will pay off. These study findings are of immediate practical use for improving these institutions’ risk management programmes.’ said Professor Simon Ho, director of CCGFP at HKBU.