Canadian Underwriter

Regulatory changes, scrutiny seen as top risk by executives

February 5, 2014   by Canadian Underwriter

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Regulatory changes and increased scrutiny by regulators have topped the list of risks for executives, according to a new survey report from consulting firm Protiviti.

 “The pressures created by regulators, plus the potential for major adjustments in light of regulatory change, are understandably tremendous concerns and present substantial risk,” Dr. Mark Beasley, Deloitte Professor of ERM and director of the Enterprise Risk Management Initiative at North Carolina State University commented in a press release.

The university’s Poole College of Managementjointly produced the Executive Perspectives on Top Risks for 2014 report.

“Having to comply with new regulatory requirements can dramatically affect the profitability and growth of an organization,” Beasley noted. “Even organizations in industries that are less heavily regulated can feel the indirect effects of new and changing regulations, especially those affecting all types of organizations, on profitability and growth.”

The 374 respondents to the survey rated the potential impact of 22 risks on a scale of one to 10 (with 10 being the highest impact).

Financial services firms, healthcare organizations and a life sciences industry group rated regulatory risk much higher than other industries, with the risk having an overall score of 6.4.

The majority of risks included in the report have a lower score than they did in the prior year, suggesting that executives view the current environment as less risky overall, Protiviti noted.

Board members view the business environment as more risky than management, and CEOs tended to be most optimistic, its report also suggests.

“One possible reason for directors perceiving the business environment as riskier than management does is that the risks with the highest ratings were primarily strategic in nature and many directors tend to focus more on strategic rather than operational issues,” Jim DeLoach, a managing director with Protiviti noted  in the firm’s press release.

“With respect to CEOs, they tend to focus heavily on the strength of markets.The global economy was showing signs of improvement during the survey period, which could have had a positive influence on the participating CEOs, resulting in a lower assessment of macroeconomic and strategic risks.”

The top 10 risks include:

  1. Regulatory changes and heightened regulatory scrutiny
  2. Economic conditions restricting growth
  3. Uncertainty surrounding political leadership affecting U.S. and international markets
  4. Challenges related to succession-planning and talent acquisition/retention
  5. The ability to grow organically through customer acquisition
  6. Cyber threats that have the potential to disrupt core operations significantly
  7. Resistance to change restricting necessary adjustments to the business model and core operations
  8. Privacy/identity management and information security/system protection
  9. Anticipated volatility in global financial markets and currencies
  10. Uncertainty surrounding costs of complying with healthcare reform legislation

“Managing uncertainty across a multitude of business issues continues to be a challenge that companies struggle with,” Patrick Scott, Protiviti’s executive vice president of global industry programs suggested in its release.

“It’s critical that organizations continue to prioritize risk management strategies to ensure that they are prepared to address emerging issues. These survey results should serve as a catalyst for an updated assessment of risks within organizations.”