Financial Risk Management 2021
Last year, risk management at financial institutions dealt with never-before-seen global challenges due to the pandemic. The varied responses from governments, as well as changes adopted by businesses and consumers, resulted in a significant economic downturn, followed by a rebound in the stock market, but not necessarily in the jobs market. As uncertainty continues to reign, what does financial risk management in 2021 look like?
To understand what the year ahead may hold, we looked at the Deloitte Global risk management 12th edition. The report assesses the industry’s risk management practices and the challenges it faces. This year’s survey was conducted from the beginning of the pandemic through the fall, March to September 2020, by 57 financial institutions globally. The following trends were seen from the survey results.
Increasing Credit Risk
Not surprisingly, 20% of those surveyed said credit risk is the most important risk factor to them over the next two years. While nearly ⅔ noted that credit risk measurement is a high priority for their institution.
More Focus on NonFinancial Risks
The survey respondents are comfortable managing financial risk. However, effectiveness in managing nonfinancial risk showed less confidence, with just 65% saying they are effective at managing it overall, with effectiveness at individual non-financial risk factors as low as a quarter of respondents.
As companies have had to adapt to remote working, their attack surface has increased, exacerbating cybersecurity concerns. Just over 60% of respondents believe their institution is very effective at managing this risk. And nearly nine in ten say that improving their cybersecurity position is a top priority in the coming years.
With more scrutiny from regulatory bodies, institutions have realized the need to improve their ability to manage third-party relationships. Less than half of respondents said they are very effective at managing third-party risk.
Environment, Social, and Governance (ESG) Risks
The importance of social responsibility has grown over the past few years, and with 38% saying it is one of the risk types that will increase the most in importance, it was the highest-ranked risk factor in this category.
Digital Risk Management Potential
For some time now, there has been a belief in the potential of digital technologies, like AI, to both reduce risk management expenses and boost effectiveness. However, across the different technologies, none were adopted by even half of the respondents yet.
Risk Data Management Challenges
Institutions struggle to adopt emerging technologies to obtain timely risk data. Nearly three-quarters said the following two areas provide the most challenges, maintaining reliable data to quantify nonfinancial risk and drive risk-based decisions and the ability to leverage and source alternative data such as unstructured data.
To learn more about these risks and others called out in the study, including risk governance and the implementation of a Chief Risk Officer, we recommend reading the full report. And if you have questions about what to consider when hiring a Chief Risk Officer and how to successfully integrate the role into your current leadership structure, please let us know how our recruiters can help.