Senior Supervisors Group reports on the financial crisis
The Senior Supervisors Group, a cooperation of regulators from the US, Canada, France, Germany, Japan and the UK has just published a report on Risk Management Lessons from the Global Banking Crisis of 2008. Based on self assessment of risk management practices in 20 global financial institutions, the report highlights failings in risk management and internal controls that have still not been addressed. They reported that the self assessments were “….. in aggregate, too positive and that firms still had substantial work to do before they could achieve complete alignment with the recommendations and observations of the (previous) studies.”
I will leave what this tells us about the overall state of financial services industry to better qualified commentators but the specific recommendations with regard to risk management practices are of interest, highlighting as they do, a lack of willingness thus far of these institutions to invest in risk management. Again quoting from the report: “….. supervisors believe that a full and ongoing commitment to risk control by management, as well as the dedication of considerable resources toward developing the necessary information technology infrastructure, will be required to ensure that the gaps between actual and recommended practice are closed in a manner that is robust and, especially important, sustainable.”
Wolters Kluwer both advocate and provide Governance, Risk and Compliance solutions to the financial services industry and, as suggested by the report, these solutions can help to address a number of the weaknesses highlighted by the regulators, including:
- Poor integration of fragmented risk management systems into a single technical infrastructure capable of providing a consolidated view of risk to senior management
- The lack of clearly defined firm-wide risk appetite statements that are linked to the underlying risk framework for monitoring and reporting purposes.
- Little or no ability (or infrastructure) to conduct firm-wide analysis and stress testing of forward-looking scenarios, especially reverse stress testing.