Risk Awareness Increased Sharply Since Financial Crisis Says EIU Study

  Risk Awareness Increased Sharply Since Financial Crisis Says EIU Study

Mindset shift needed however to ensure risk culture embedded across the
business

Business Wire

SINGAPORE -- May 07, 2013

Investment institutions are more acutely aware of the risks they face since
the global financial crisis but many still need to improve the way those risks
are communicated internally, according to new research by the Economist
Intelligence Unit (EIU) commissioned by State Street Corporation (NYSE:STT).

The survey of global asset managers and asset owners found that more than
three-quarters of respondents (78 percent) said their organisation had a very
risk-aware culture today. This compares with only 30 percent that made risk
their highest priority in 2007. This shift represents a significant cultural
change for investment institutions. The proportion of organisations placing
risk management as their highest priority has more than doubled since before
the 2008 financial crisis.

The survey entitled, “Closing the communication gap: How institutional
investors are building risk-aware cultures,” was conducted in the first
quarter of 2013. Respondents included nearly 300 executives of investment
institutions – 48 percent of which were asset managers, 35 percent asset
owners and 18 percent intermediaries.* Approximately 39 percent of respondents
were headquartered in the Asia Pacific region, 33 percent were from Europe and
19 percent from North America.

David Suetens, executive vice president and international chief risk officer
at State Street said, “Investors and regulators will be reassured by the
survey’s conclusion that asset owners and managers have improved their risk
awareness ‘beyond recognition’ since 2008. But a mindset shift still needs to
occur at many organisations to improve levels of trust and dialogue between
the business and risk functions and ensure they are developing a real culture
of risk-awareness across the whole enterprise.”

Reputational risk is now seen as one of the top risks for institutions, the
survey found. More than half of all respondents (56 percent) ranked
reputational risk equally with risk arising from market volatility (market
risk) as among their organisation’s highest priorities.

However, despite the greater awareness of risk, the study also found a
disconnect between business and risk functions and differences of opinion
about the role of the risk function at many institutions. The majority of
non-risk staff (52 percent) think the risk function exists primarily to
fulfill regulatory obligations, while less than a third (30 percent) of risk
professionals think this.

According to the report, these findings suggest that risk managers are not
fully communicating their mission to the wider organisation and also that the
risk function itself is keenly aware of this.

“It indicates a certain amount of frustration from both perspectives, possibly
hindering the development of risk-awareness across the enterprises,” added Mr
Suetens.

The survey also identified the important role played by a senior risk
committee or governance body that brings together senior risk, compliance and
audit representatives. The survey suggests that these committees are linked
with better risk awareness, better quality risk information, better
co-ordination between risk, compliance and audit and fewer misunderstandings
between risk and business functions.

Wai Kwong Seck, executive vice president and head of Global Markets and Global
Services across Asia Pacific said, “Senior risk committees play an important
role in improving the risk culture. 83.3 percent of respondents from
organisations with strong committees report that risk is given the highest
priority, compared with only 64.1 percent of respondents from organisations
without them. In fact there is clear evidence across a number of risk measures
that strong committees have a tangible impact on closing the communication
gap.

“They are also more likely to have their CRO on the executive management board
and for the CRO to play a significant role in strategy and business planning.
In turn those institutions with a senior risk committee and a chief risk
officer sitting on the executive management board believe the risk function
helps produce better investment outcomes.

“The survey confirms that a strong risk committee and risk governance closes
the communication gap significantly, delivering better investment outcomes and
achieving an enterprise-wide culture of risk-awareness,” added Mr Seck.

Despite the significant shift in mindset the report acknowledges that closing
this communication gap further will ensure that investment institutions can
better fulfill their ongoing responsibilities to shareholders, clients and
regulators.

To see a copy of the full report please go to http://statestreet.com/vision

* Percentages may not add up to 100 percent either due to rounding or because
respondents could pick more than one answer

About State Street Corporation

State Street Corporation (NYSE: STT) is one of the world's leading providers
of financial services to institutional investors including investment
servicing, investment management and investment research and trading. With
$25.4 trillion in assets under custody and administration and $2.2 trillion in
assets under management at March 31, 2013, State Street operates in more than
100 geographic markets worldwide, including the U.S., Canada, Europe, the
Middle East and Asia. For more information, visit State Street’s web site at
www.statestreet.com.

This AUM includes the assets of the SPDR Gold Trust (approx. $62.7 billion as
of March 31, 2013), for which State Street Global Markets, LLC, an affiliate
of State Street Global Advisors, serves as the marketing agent.

About the Economist Intelligence Unit

The Economist Intelligence Unit (EIU) is the world's leading resource for
economic and business research, forecasting and analysis. It provides accurate
and impartial intelligence for companies, government agencies, financial
institutions and academic organisations around the globe, inspiring business
leaders to act with confidence since 1946. EIU products include its flagship
Country Reports service, providing political and economic analysis for 195
countries, and a portfolio of subscription-based data and forecasting
services. The company also undertakes bespoke research and analysis projects
on individual markets and business sectors. More information is available at
www.eiu.com or follow EIU on www.twitter.com/theeiu

The EIU is headquartered in London, UK, with offices in more than 40 cities
and a network of some 650 country experts and analysts worldwide. It operates
independently as the business-to-business arm of The Economist Group, the
leading source of analysis on international business and world affairs.

Contact:

State Street Corporation
Ric Shadforth, +61 2 8249 1110
www.statestreet.com
@StateStreet
 
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