There is an old adage in management that states: “If we were starting out today, we wouldn’t start from here.” Risk management in banks (and many other firms) is currently spread around different parts of the organisation, often silo-operated through political pressure and using systems which do not integrate properly, if at all. No one in their right mind would build a risk management system along these lines – and in reality, no one set out to do so.
Risk management has become a victim of the regulation that was designed to create a safer and more stable financial system. Huge new initiatives, such as Basel II, MiFID, Sarbanes-Oxley, IFRS, Solvency 2, etc, have been created in independent spheres, leaving the banks and other financial firms the task of implementing them piece-meal according to an externally dictated timetable. The penalties for not complying are dire and firms, quite naturally, as they are subject to numerous competing pressures on their resources, have tended to wait until the implementation deadline approaches and then scramble to comply.
The result is an inefficient risk management structure that does not create value for the organisation and, based in silos, may not even serve its basic purpose of controlling risk. There is a danger that the lack of an overarching view of risk allows problems to appear in the cracks between different parts of the structure.
The new mantra in the risk world is “from compliance to performance”, as firms appreciate the need for a single view of risk. Even if the current risk management systems in use comply with the letter of the regulations, are they serving the needs of the organisation? How could things be done better?
In the belief that there is indeed a better way, The Banker and KPMG are delighted to present to our readers this special supplement on risk management. A whole raft of benefits can be obtained from looking at risk management afresh and considering it from a holistic point of view.
The checklist for good risk management systems are: is it efficient? Does it deliver value? Is it based on standard principles? The articles in this supplement will guide readers through an assessment of their systems based on these criteria and provide practical advice on how models can be adapted to the new corporate realities of regulation, globalisation, product complexity, as well as rating agency and shareholder pressures. We are sure our readers will benefit from the material and not feel too daunted that their starting position for reform is far from ideal.
Brian Caplen
Nigel Harman
Volker Thier
Michael J Conover
