In financial services, independent yet overlapping functions hinder a comprehensive understanding of risk

In most financial institutions, governance, risk and compliance activities are spread across several overlapping and related functions. Each function, such as audit, compliance, finance and legal, operates independently, leading to inconsistent and inefficient processes. According to a new report, Governance, risk and compliance in financial services: Learning from the present to prosper in the future, published by the Economist Intelligence Unit and sponsored by Oracle, the bigger problem is that each silo reports separately to senior management, which hinders a comprehensive understanding of risk.

Most financial institutions undertake multiple overlapping activities when seeking to control their risk profile, including risk governance; financial, operational and IT risk management; audit and control activities; and compliance efforts. Proponents of an integrated governance, risk and compliance strategy say these elements should be linked to produce a more transparent view of risk across an organisation. One key area where integration could help is improving the ability of organisations to assess the effectiveness of their overarching governance and risk policies.

One outcome of the recent bout of asset price volatility is that it has exposed weaknesses in the risk governance of financial institutions, increasing the incentives for reform in this area. Firms are increasingly striving for a more effective governance policy which defines the organisation’s risk profile, lays out a process for evaluating and prioritising risks, and makes sure the process is followed.

Other findings of the report include the following:

• Financial services executives see the main benefits of integrating governance, risk and compliance functions as gaining better control over business processes (cited by 40% of respondents) and in reducing the risk of non-compliance (37%).
• The main obstacle to implementing an integrated programme in governance, risk and compliance is not apathy at board level, technology hitches or even organisational silos. The main hindrance, according to 34% of respondents, is internal politics—not least the uncooperative response of executives who perceive the integration of governance, risk and compliance as an encroachment on their turf.
• Firms which pay little attention to the integration of risk and governance functions seem to also be the firms which pay least attention to risk management more broadly. Survey respondents were asked whether their institutions strike a balance between risk and opportunity or are overly biased towards one or the other. The firms that have not taken steps to integrate governance, risk and compliance tend also to be those focused on the pursuit of new business to the exclusion of risk control.

Governance, risk and compliance in financial services:
Learning from the present to prosper in the future
is available free of charge at www.eiu.com/Sponsor/Oracle/GRCUS/

Press enquiries:
Joanne McKenna +44 (0)20 7576 8188; joannemckenna@eiu.com
Dan Armstrong + 1 212 698 9710; danarmstrong@eiu.com

About the survey
The research is based on a global survey of 167 executives at financial services companies in February 2008. Of the survey respondents, 51% were senior executives (board-level or C-level), and 49% were directors, business unit heads, and other managers. Worldwide, 30% of respondents were based in North America, 23% in Western Europe, 30% in the Asia-Pacific region, and 17% from Latin America, Eastern Europe, the Middle East, and Africa. More than half of the respondents (52%) worked at organisations with global assets of more than US$50bn.

About the Economist Intelligence Unit
The Economist Intelligence Unit is the world leader in global business intelligence. It is the business–to–business arm of The Economist Group, which publishes The Economist newspaper. As a provider of country intelligence, we help executives make better business decisions by providing timely, reliable and impartial analysis on worldwide market trends and business strategies. More information about the Economist Intelligence Unit can be found at www.eiu.com.