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KPMG Releases Expectations of Risk Management Outpacing Capabilities Survey

Posted on 22 May 2013 by Neilson

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KPMG survey KPMG International announced in a survey report, Expectations of Risk Management Outpacing Capabilities, regulatory pressure is consistently one of the biggest threats facing companies across industries, and the number one challenge facing financial services and energy and natural resources companies.

In a release, the Company noted that regulatory, namely government pressure to contain spending, was the top risk in health care.

Survey respondents in all industries other than health care say the most threatening risk scenario, defined as issues potentially on the horizon, is the possibility of another global economic crisis or geopolitical instability. But the biggest risk scenario for health care executives is a sharp slowdown in health care spending.

Seventy percent of c-suite executives, across all industries, say that regulatory changes have caused either substantial or moderate changes in their risk management and reporting processes in the past two years.

-59 percent of c-suite executives at financial services companies and 53 percent of c-suite energy and natural resources executives identified regulation as their top threat

-50 percent of health care executives said government pressure to contain spending was their biggest threat

-49 percent of executives in diversified industrials said an economic slowdown in OECD markets was their biggest risk

-44 percent of executives in technology media and telecom said a slowdown in demand was their biggest threat.

"We found that risk management is not advancing fast enough at most companies in the face of an array of threats in an increasingly complex global economy," said Mike Nolan, KPMG International's Global Leader for Risk Consulting. "But companies can transform these challenges into a competitive advantage. All of their competitors are in the same boat, but very few are going to take advantage of the regulatory onslaught to become more competitive. The companies that do will be in a strong position to turn regulatory risk into an advantage."

The survey, Expectations of Risk Management Outpacing Capabilities, It's Time For Action, provides insights about the risk- related issues most critical to the c-suite.

The report also includes real-world insights from top executives with risk management responsibility at major companies. Additionally, the report puts a spotlight on several industries including financial services, health care, energy and natural resources, technology/media/telecom and diversified industrials.

When asked to rank the top-three threats facing their industry, 46 percent of overall respondents included regulatory risk in comparison to:

-Reputational (41 percent)

-Credit/market/liquidity (34 percent)

-Supply chain (28 percent)

-Information protection/security/fraud (17 percent)

-Disruptive technology risks (17 percent)

-Data governance and quality (13 percent)

-Legal risk (12 percent)

-IT infrastructure (11 percent)

-Social media (9 percent)

-Natural disasters (9 percent)

-Climate change (7 percent)

According to the KPMG report, in the financial services industry, banks and other financial institutions face a plethora of new regulations, especially in Europe and the United States, where international banks face at least 40 major sets of new regulations that affect everything from how retail customers are treated to the way derivatives are traded. In addition, new global regulations for bank capital and liquidity, known as Basel 3, came into effect in January 2013.

The survey also revealed:

-Despite their awareness of the risk environment and devoting more resources to risk management, many companies struggle to communicate their risk program with stakeholders, link risk management with compensation and build an enterprise-wide view of threats.

-86 percent of survey respondents said risk management is factored into strategic planning decisions

-Two thirds of respondents said they will invest more in risk management as a proportion of corporate revenue in the next three years than they did in the previous three

-Almost half profess difficulties in understanding their enterprise-wide risk exposure

-Less than one fifth have developed a formal risk appetite statement, yet this is an important step in risk management

-Less than half believe their organization is effective at developing stakeholder's understanding of the risk program

-43 percent said there was a weak link between risk management and compensation

"While the global financial crisis has created significant challenges for businesses, one positive outcome is boards' desire for greater understanding of integrated risk management," said Nolan. "As trusted advisors, handling strategic risk is not about compliance and box-ticking, it is a critical investment companies make that can underpin an organization's long-term growth, value and sustainability. It's all about risk optimization and aligning an organizations' risk appetite with desired returns."

The KPMG Global Survey Expectations of Risk Management Outpacing Capabilities, It's Time For Action, was conducted by the Economist Intelligence Unit.