Regulation, IT costs and macro-economic factors rank highest in Willis’s Financial Institutions Risk Index

Survey also revealed that only 40% of C-suite executives believe the financial sector’s ability to manage risk has materially changed for the better over the past twelve months

Regulatory pressures, rising costs from new technology and macro-economic factors are the three biggest risks weighing on the minds of senior C-suite executives in the global financial sector, according to new research carried out by Willis.

The Willis Financial Institutions Risk Index – based on a global survey of more than 150 individuals – captures the consensus view of senior C-suite executives charged with running global banks, insurers, reinsurers, asset managers, hedge funds and fin-tech firms, and measures how these corporate leaders perceive risks now and into the future.

Giving unprecedented insight into the issues which occupy the minds of C-Suite executives and boards of financial institutions around the world, the research identified six key “mega-trends” which, together, are changing the financial sector.

Foremost amongst these is “regulatory change and complexity” – which is ranked highest by C-suite executives across the globe, both in terms of the significance of its impact on the financial sector and the difficulty of managing the impact.

Other mega-trends which dominate the minds of the C-Suite, according to the research, include: “digitalisation and technological advances”, “global talent and skills race”, “changes in investment and capital sources and returns”, “demographic and behavioural changes” and “business operating model pressures”.

More precisely, the research also identified several associated risks caused by these mega-trends. Quantitative easing (QE) and inflation/deflation was identified by the C-Suite as the top risk priority above all others. This risk, associated with the “changes in investment and capital sources and returns” megatrend, achieved the highest composite score – based on how the risk was ranked by C-Suite respondents in terms of severity as well as how easy it was to manage the risk.

Specifically, the risk of increasing costs associated with IT infrastructure ranked second by the same measure. Regulatory pressures prompting people to leave the sector or to move to lightly regulated firms was ranked third out of a total of 31 risks in the survey.

The remaining top ten risks were overwhelmingly dominated by risks associated with just three megatrends; “digitalisation and technological advances”, “regulatory change and complexity” and “global talent and skills.”

Elsewhere – and more worrying still – the survey also revealed that only a minority (40%) of C-suite executives actually believe that the financial sector’s ability to manage risk has materially changed for the better over the past twelve months. This startling finding suggests the sector still has much to do to build the resilience it needs to face the risks of today as well as future shocks.

Commenting on the results of the inaugural Willis Financial Institutions Risk Index, Mary O’Connor, Global Head of Willis’s Financial Institutions Group, said: “The index demonstrates that the financial sector is being squeezed between two types of risk: on one side, the growing demands of governments, regulators and clients; on the other, unparalleled economic volatility and instability.”

She added: “The past five years have provided a daunting challenge to traditional financial services institutions and the professionals who run them. New pressures have emerged. Mobile banking is changing the way a new generation interacts with its financial providers, for example. Financial technology (fin-tech) firms are using online digital platforms to slash overheads and offer cheaper alternatives to traditional banking clients. Meanwhile, financial regulations weigh heavily on incumbent banks while non-bank financial institutions and fin-tech firms have flourished under “light touch” regulation.”

O’Connor continued: “The world is full of risk. We will never fully control it. In fact, in our complex, interconnected world, it is sometimes folly to try. But the better we understand and measure risk, the easier it is to build and protect a firm’s brand, manage its assets, develop a robust growth strategy, deploy capital optimally, invest strategically to gain a crucial competitive advantage and develop resilience for the future.”

 

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