IT costs, regulation and macro-economic factors top the list according to new research

Risk management

Regulatory pressures, rising costs from new technology and macro-economic factors are the three biggest risks concerns for senior c-suite executives in the global financial sector, according to new research carried out by Willis Group.

The Willis Financial Institutions Risk Index was based on a global survey of more than 150 individuals and measures how corporate leaders at global banks, (re)insurers, hedge funds and asset management and financial technology (fin-tech) firms perceive current and future risks.

The research identified six key mega-trends in terms of their effects on the financial sector and the difficulty of managing their consequences. These included:

  • regulatory change and complexity;

  • digitalisation and technological advances;

  • global talent and skills race;

  • changes in investment and capital sources and returns;

  • demographic and behavioural changes; and

  • business operating model pressures.

The survey also revealed that only 40% of c-suite executives believe the financial sector’s ability to manage risk has materially improved in the past 12 months.

Commenting on the results, Willis Financial Institutions Group global head Mary O’Connor said: “The index demonstrates that the financial sector is being squeezed between two types of risk: on one side, the growing demands of governments, regulators and clients; on the other, unparalleled economic volatility and instability.

“The past five years have provided a daunting challenge to traditional financial services institutions and the professionals who run them. New pressures have emerged. Mobile banking is changing the way a new generation interacts with its financial providers, for example. Fin-tech firms are using online digital platforms to slash overheads and offer cheaper alternatives to traditional banking clients. Meanwhile, financial regulations weigh heavily on incumbent banks while non-bank financial institutions and fin-tech firms have flourished under “light touch” regulation.

“The better we understand and measure risk, the easier it is to build and protect a firm’s brand, manage its assets, develop a robust growth strategy, deploy capital optimally, invest strategically to gain a crucial competitive advantage and develop resilience for the future.”

The research also identified several associated risks caused by the six mega-trends. Quantitative easing (QE) and inflation/deflation was identified as the top risk priority above all others. This risk, associated with the “changes in investment and capital sources and returns” mega-trend, achieved the highest composite score – based on how respondents ranked the risk in terms of severity as well as how easy it was to manage it.

The risk of increasing costs associated with IT infrastructure ranked second by the same measure. Regulatory pressures prompting people to leave the sector or to move to lightly regulated firms was ranked third out of a total of 31 risks in the survey.

The remaining top 10 risks were dominated by risks associated with three mega-trends; “digitalisation and technological advances”; “regulatory change and complexity”; and “global talent and skills.”