Regulatory Risk Tops All Others For Financial Services Execs

According to a new KPMG International survey report, regulatory pressure is consistently one of the biggest threats facing companies across industries, and the number one challenge facing financial services companies.

A full 70 percent of C-suite executives, across all industries, say that regulatory changes have caused either substantial or moderate changes in their risk management and reporting processes in the past two years, KPMG reports, adding that 59 percent of C-suite executives at financial services companies identified regulation as a top threat.

More than 1,000 respondents serving as chief executive officers, chief financial officers, chief information officers, chief risk officers, chief audit executives, general counsel or on boards of directors, were asked to rank the top-three risk issues from a list of possibilities, for the global survey carried out in December 2012 by the Economist Intelligence Unit on behalf of KPMG.

When asked to rank the top-three threats facing their industry, 46 percent of overall respondents in less regulated industries (industries other than financial services, energy, health care, technology, media & telecommunications, and diversified industrials) included regulatory risk, compared to 59 percent of financial services executives.

For the financial services respondents, other issues seen as posing significant risks were:

• Reputational risk, 40 percent
• Market risk, 37 percent
• Credit risk, 36 percent
• Liquidity risk, 23 percent
• Information security, 19 percent
• Fraud, 19 percent
• Geopolitical risk, 15 percent
• IT infrastructure, 13 percent
• Poor data governance and quality, 11 percent
• Financial reporting (e.g., reporting requirements), 8 percent
• Social media, 1 percent

Unlike the lists of risk concerns for other industries, the financial services sector list did not include “disruptive technology risks,” which 17 percent of respondents in other industries identified as a key risk. In addition, other respondents had more concern about social media, with 9 percent selecting that as a top-three threat.

Survey respondents were also asked to list the top three risk scenarios—issues potentially on the horizon—that pose the greatest threat to in their industries. Here, two-thirds (66 percent) of the financial services executives identified the possibility of another “global economic crisis or geopolitical instability” as the most worrisome scenario.

Beyond that, 54 percent of financial services executives cited “recession in key markets,” while 41 percent listed “collapse of a major global bank,” as one of the top-three risk scenarios.

Sovereign default and data breach were also concerning scenarios, each selected in the top-three by more than a quarter of the financial services executives (29 percent for sovereign default and 28 percent for cyber attack or data breach).

About The Survey

The KPMG Global Survey, Expectations of Risk Management Outpacing Capabilities—It’s Time For Action, was conducted by the Economist Intelligence Unit on behalf of KPMG in December 2012.

• The survey gathered data from 1,092 respondents around the world in a closed-ended online questionnaire.
• All were C-level executives: 28 percent were Chief Executive Officers or equivalent and 18 percent were Chief Financial Officers, the two largest groups.
• Company sizes were evenly distributed: 46 percent were companies with annual revenues of $500 million or less, while 37 percent were very large—reporting revenues of $1 billion or more.
• Most of the responses came from North America (25 percent), Europe (25 percent) and Asia-Pacific (23 percent).
• Survey participants came from more than 21 industries, with financial services (including banking, insurance) comprising the biggest group, accounting for 17 percent of respondents. In addition, Technology, Media & Telecommunications made up 16 percent; Health Care comprised 15 percent; and Energy and Natural Resources comprised 14 percent. Another large category was Diversified Industrials (including manufacturing, automotive and aerospace) which made up 15 percent of the total. This left 23 percent from other industries such as consumer goods and chemicals.

Source: KPMG