Financial institutions are ignoring key areas of risk, according to a study by PricewaterhouseCoopers (PwC).
In the aftermath of September 11th and the run of corporate scandals, including AIB's losses at the hands of rogue trader John Rusnak, the study says financial groups still concentrate on risk issues that are purely financial, quantifiable and predictable.
Issues such as damage to reputation, the cost of changing regulation, the price of losing key personnel and the potential pitfalls of security in the realm of e-business all figure poorly, if at all, in a survey of financial institutions.
However, the survey shows that companies are spending more time on the issue of risk management.
The PwC report urges companies to adopt a holistic approach to risk management, not only to avoid losses but to increase shareholder value. It argues that chief executives must make it clear that the company is aware of the risks it faces, the risks it is prepared to contemplate and the methods used to balance risks and returns.
The report says everyone in a given company should be encouraged to take risks but only once they are aware of how much risk the company is prepared to expose itself to. Risk management, it says, is everyone's responsibility.
Companies should avoid products or businesses it does not understand. It doesn't matter how stellar the performance being delivered by a business or product if it is too complex to understand.
The study, part of a series of e-briefings on financial services, warns against allowing different parts of a business to set their own risk agendas. In today's environment, where executives are increasingly called to account when things go wrong, it argues for a centralised risk management structure where people who understand the dangers can stop projects that don't fit the company profile.
