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More than half of city institutions don't understand the risk on their balance sheets
56% of financial institutions still don’t have a clear enough understanding of the risks on their balance sheets, putting them at risk from the current stock market turmoil, according to 400 of the City’s top risk professionals. Specialist risk executive search consultancy, GRS, conducted the research asking how much understanding financial institutions have at board level of how the markets price their assets and liabilities and the consequent risks to their balance sheets.
On average, they thought just over half of the City’s institutions were at risk - and more than one in three respondents thought that more than 75% of companies were at risk.
David Butters, head of risk at GRS, said: “When financial markets were a one-way bet, proper risk management could take a back seat. We’ve now entered a period when the fate of companies can turn on rumour and speculation. Risk management has to come to the absolute forefront of management strategy.
But the majority of financial institutions still don’t understand the risks they face. Their boards are not plugged in to risk and institutions are being led into battle blind. This is because the professionals employed to understand the risks the current market poses to their firms’ balance sheets have no direct access to their firms’ boards. There needs to be serious re-structuring of the way risk functions are integrated into companies and the priority they are given.’
According to GRS’ global risk recruitment survey, over 50% of institutions understand the need for risk functions to contribute directly to business strategy and planning. But most CROs (63%) still have no direct access to their board, let alone a place on it. In fact, only 12% of institutions have a risk professional with a permanent position at the top table.
David Butters called for immediate action: “In the current market, companies need to be making sure their risk officers have access to the board; and are able to take a strategic advisory role at the very least. Companies are beginning to see the risk function needs to be integral to their systems and strategy; and many are full of good intentions. But in the current market, institutional boards need to be prioritising these changes. They need to act fast to make sure that their institution really has an understanding of the risks they face.”
