Opalesque Industry Updates - Capital Market Risk Advisors, Inc., (CMRA), a leading risk management, risk governance, and litigation support boutique for the past 20 years, today released the results of its 2010 Risk Governance Survey. To see the full report, click here.
In the wake of the financial crisis, risk governance has emerged as a key topic. What role should a Board play in risk oversight? Should Risk Attitude be addressed in Risk Appetite statements? How should compensation be properly risk adjusted? These and other questions are increasingly being debated in boardrooms around the world, as well as by politicians and regulators.
In the midst of this debate, it is important to understand the approach financial institutions are currently taking to Risk Governance and the plans they have for the future. The attached survey represents what we believe is the most comprehensive Risk Governance benchmarking exercise to date.
"As a Bank Director myself I am particularly pleased to see an increase in responses from Directors themselves to this year's survey", said Leslie Rahl, Managing Partner of CMRA, derivatives pioneer, and one of the "Top 100 Most Influential People in Finance" in the June 2010 rankings of Treasury & Risk Magazine.
The survey of both U.S. and foreign banks, pension funds, asset managers, and insurance companies found that:
-89% of overall respondents have a CRO compared to last year’s 70%
-66% of CROs have both strategic and a control rule, up from 47% last year
-84% of respondents’ CROs have executive sessions at most Board meetings up from last year’s 44% who had such access
RISK ADJUSTED COMPENSATION
-Only 59 % of respondents differentiate between realized and unrealized P&L when considering Risk Adjusted Compensation and less than 50 % allocate additional risk for illiquidity, complexity, new products, hard to value and/or lack of transparency
-73 % of respondent’s stress test sensitivity to volatility, only 27 % to haircut/margin requirements, and 47 % to liquidity/Bid-ask spreads
RISK APPETITE STATEMENTS
-57 % of respondents have a Risk Appetite Statement compared to 37% last year and 27 % are considering a Risk Appetite Statement
-Including “Risk Attitude” in Risk Appetite Statements is a Best Practice but still evolving
-The most frequent changes to Risk Governance have been:
-Only 55 % of respondents calculate potential future exposure
-In addition to derivatives, only 61 % include repos and 52% include Securities lending; and 30% include both
BOARD RISK EDUCATION SESSIONS
-61% of respondents held at least 1 Risk Education session for their Board and 31% held 2 or more session
COUNTERPARY, LIQUIDITY, AND OPERATIONAL RISK
-Boards are increasingly reviewing counterparty, liquidity, and operational risk information.
"The results show a quickening trend to the use of more comprehensive risk management practices. This is in part driven by increased questioning about risk management from customers, regulators, and rating agencies." said David Tyson, a Managing Director at CMRA and former CEO of Travelers, who has been implementing risk management practices in the asset management and insurance industry since 1979 and has served on key Citigroup and Travelers governance committees.
Participants will be receiving customized peer group comparisons.
Our advisory services include assessing risk exposures and advising on risk management and strategy, the valuation of complex or illiquid instruments, and benchmarking risk management and risk governance practices against best practice. We also advise senior managers and Boards with respect to all types of risk management and risk governance issues, developing risk appetite statements, advising on risk reporting and communication, and reviewing and drafting risk management and compliance policies and procedures.