Financial services companies should re-evaluate their risk management structures in favour of a more practical and holistic approach, according to a new report from PricewaterhouseCoopers and the Economist Intelligence Unit (EIU).
The report, "Taming Uncertainty: Risk Management for the Entire Enterprise," suggests that many banks have a tendency to split risk into three neat areas of credit, market and operational risk, and then set up departments to deal with each, rather than accepting that many of these risks are interlinked.
According to Juan Pujadas, head of the global financial risk management practice, PricewaterhouseCoopers: "A comprehensive and integrated view of risk, and a dynamic process for managing risk are essential components of a leading-edge risk management capability."
The report advises that a number of factors need to coalesce in order to create the right framework for holistic risk management. These include board level management seizing the risk management agenda and making risk management a strategic priority; and the establishment of procedures to ensure that an awareness of risk filters through to corporate governance, decision-making, external reporting and compensation. The report also urges people and systems to be put in place to deliver risk information to management.
Juan Pujadas, continues: "A regular and objective assessment of a company's own internal risk management framework and increased attention to the risks created through dealings with other institutions, whose risk management structures may not be as robust, are crucial."