86% of polled financial services firms to increase risk management investment in next two years: Accenture

Emerging cyber security and fraud risks are prompting the vast majority of surveyed financial services firms to increase their investment in risk management capabilities over the next two years, notes the latest Accenture 2015 Global Risk Management Study.

The fourth edition of the study, first published in 2009, is based on responses from 470 senior risk management executives in the banking, capital markets and insurance industries who are involved in risk management decisions. Of the respondents, 150 were from Asia Pacific, 170 were from Europe and 150 were from North America, with in-depth interviews of senior leaders from 50 leading organizations providing supporting insights for the data-driven research. [click image below to enlarge]

In all, 86% of polled executives reported that their organizations plan to increase investment in risk management capabilities in the next two years, notes a statement this week from Accenture, a global management consulting, technology services and outsourcing company.

Of those respondents, 26% of companies plan to increase investment by more than 20%, and 29% of respondents reported their firms plan to increase by more than 20% their investment in cloud/software-as-a-service and big data/analytics.

The influence that concerns around the increasing impact of cyber security and fraud is having on risk management is clear among respondents:

• 34% reported that understanding cyber risk will be the most-needed capability in their risk function;

• 65% noted that cyber/IT risk will have an increased impact on their businesses in the next two years, with a quarter reporting the increase would be significant; and

• 82% responded that emerging risks, such as cyber and social media, account for more of the chief risk officer’s (CRO) time than ever before.

“Financial services firms are struggling to keep pace with the demand for people with highly specialized skills, such as cyber risk experts, business analysts, security specialists and fraud experts,” Steve Culp, senior global managing director for Accenture Finance and Risk Services, says in the statement. “To fill these gaps, most firms will have to look outside of their organizations — and the competition for the right people is increasingly intense,” Culp suggests.

In all, just 41% of surveyed firms claim to have extensive skills in understanding digital technologies, and only 10% said their risk function has the resources needed in specialized areas, such as emerging risks.

Accenture reports that recruiting in the past two years has targeted cyber risk experts (cited by 48% of respondents) and fraud experts (noted by 36%), while 36% reported having hired former hackers.

Survey results indicate 43% of financial services firms surveyed reported that they have a higher risk appetite for developing new products than they had two years ago, and 36% have a greater appetite for taking on major digital initiatives. [click image below to enlarge]

“The willingness to accept greater business risks will also expose financial services firms to emerging risks – including cyber, data privacy, reputational, social media and new conduct risks – requiring risk professionals to play an enhanced role,” says Culp.

As such, skills will be required as risk appetite grows. But almost three-quarters of respondents noted that managing emerging digital risks and the increased velocity, variety and volume of data challenge their ability to be effective.

Accenture reports that, increasingly, CROs seek to play a more strategic role in their companies. That said, the majority of financial services firms have some distance to travel before risk management becomes fully aligned with broader strategic planning, the statement adds.

The survey found that 73% of respondents reported that gaining the trust of the business is a top challenge to their effectiveness. Just 17% said their companies have a framework that supports major strategic decision-making with input from risk management.

“While many have said the increase in data has posed a challenge, risk teams can free up time by automating data collection and analysis in order to focus on more strategic management activities,” Culp suggests. “Better data is required by regulation, but it will also help CROs advise their stakeholders on meeting key goals around risk-adjusted profitability and performance.”

Notes the report, “Risk means challenges, including disruptive new technologies, a changing competitive field and ongoing regulatory revisions. The flip side to every one of these challenges is opportunity. And opportunity is the value inherent in risk.” [click image below to enlarge]

With regard to insurance respondents specifically, the report notes that growth is back on the agenda and digital presents new opportunities. Of the surveyed insurers, 44% have a greater appetite for new product development, 43% have a greater appetite for new alliances and partnerships, and 85% say risk function can leverage digital to become a business partner.

The report notes that CROs and their teams cannot be bystanders to the changes currently unfolding.

“They should maintain their own balance, working with business leaders to evaluate and support new ventures while also advancing the capabilities within their own function,” the report advises. “In parallel, they should also provide strong guidance around operational risk and emerging technology challenges particularly with the new digital channels and business models emerging via these platforms,” it adds.