Heightened regulatory scrutiny and greater concerns over risk governance have led financial institutions to elevate their focus and attention on risk management, a new global survey from Deloitte finds.

In response, banks and other financial services firms are increasing their risk management budgets and enhancing their governance programmes.

According to Deloitte's eighth biennial survey on risk management practices, titled "Setting a Higher Bar," about two-thirds of financial institutions or 65 per cent, reported an increase in spending on risk management and compliance, up from 55 per cent in 2010.

A closer look at the numbers finds, though, that there is a divergence when it comes to the spending patterns of different-sized firms.

The largest and the most systemically important firms have had several years of regulatory scrutiny and have continued their focus on distinct areas like risk governance, risk reporting, capital adequacy and liquidity.

In contrast, firms with assets of less than $10 billion are now concentrating on building capabilities to address a number of new regulatory requirements, which were applied first to the largest institutions and are now cascading further down the ladder.

"The financial crisis has led to far-reaching major changes of doing business in financial institutions' risk management practices, with stricter and ruled based regulatory requirements demanding more attention from management and increasing their overall risk management and compliance efforts," said Deloitte Middle East financial services industry leader Joe El Fadlt.

"That said, risk management shouldn't be viewed as either a regulatory burden or a report destined to gather dust on a shelf.

"Instead, it should be embedded in an institution's framework, philosophy and culture for managing risk exposures across the organisation," he added.

"Knowing that a number of regulatory requirements remain in the queue, financial institutions have to be able to plan for future hurdles while enhancing their risk governance, enhancing management capabilities with better risk awareness using data analytics, and improving in data quality ," he said.

"Those that do will be well-placed to steer a steady course though the ever-shifting risk management landscape," he added.

The majority of the institutions participating in the survey or 58 per cent, plan to increase their risk management budgets over the next three years, with 17 per cent anticipating annual increases of 25 per cent or more.

This is not a trivial matter as 39 per cent of large institutions - particularly those based in North America - reported having more than 250 full-time employees in their risk management function. – TradeArabia News Service