LONDON, June 21 Three quarters of banks and
financial firms have not pushed improved risk management at
senior levels down through their businesses, according to an
"While many (companies) have been successful establishing a
risk appetite at the enterprise level, many are struggling to
effectively cascade the risk appetite through the operational
levels of the organization and embed it into decision-making,"
said the report by Ernst & Young and the Institute of
International Finance (IIF), released on Thursday.
It said the structure of risk management had undergone
significant change since the 2008/09 financial crisis, but most
firms were struggling to make all the company aware of risk
appetite, or the amount and type of risk a bank is able and
willing to take in pursuit of profits.
Only 26 percent of firms surveyed showed they had made good
progress embedding their risk appetite into the businesses, and
only 37 percent said their risk management changes had linked
into their "day-to-day" decision making.
The financial crisis has shown significant failures in
management, supervision and regulation of risks, and a $2
billion trading loss unveiled last month at U.S. bank J.P.Morgan
, which had been regarded as one of the best risk
managers, shocked investors and rekindled concern about how far
management are on top of complex trading positions.
Firms were conducting more internal "stress testing" as part
of their risk management, and three-quarters of those surveyed
said they had implemented new processes in the past year.
"The proper risk culture, understanding the right balance of
risk appetite, and the right balance of risk/reward, are
essential to mitigating future crises, without which, no amount
of capital or prospective rules will hold us safe," said Rick
Waugh, a vice-chairman of the IIF and CEO of Canada's Scotiabank