Accenture 2015 Global Risk Management Study: Capital Markets Key Findings and Insights

2015 Global Risk Management Study

Industry: Capital Markets

2Copyright © 2015 Accenture All rights reserved.

Key findings

2

Source: Accenture 2015 Global Risk Management Study – Capital Markets respondents. Access at: http://www.accenture.com/riskstudy2015

Key challenges Risks on the horizon

5 key priorities

Risk Management in the Capital Markets Sector

Capital markets respondents to the Accenture 2015 Global Risk Management Study face 3 key challenges:

1 2 3Volatilemarkets

Demandingclients

Digitaldisruption

1 2

3 4

Collaboration and integrationTies between risk and finance could be stronger.

22%of capital markets respondents say risk and finance coordinate closely

to drive decision making.

22%have integrated data sources for risk and finance.

Operational riskDigital, social and big data rising.

58%of capital markets respondents expect an increase in theseverity of cyber risks.

31%of respondents say they have social media skills to a great extent.

The war for talentCould intensify around specialized skills.

88%of surveyed respondents plan to invest more in risk capabilities in next 2 years.

9%say the risk function has the resources it needs even in specializedareas like emerging risks.

Risk cultureOften exists in silos.

10%

of capital markets respondents have a strong organization-wide risk culture.

24%expect to have reached this level of maturity in 2 years' time.

5Data and analyticsData accuracy and integrity is a critical priority.

38% of capital markets respondents have data management skills to a great extent.

9% say consistent updated data is availableorganization-wide.

8% say strategic decision-making leverages risk-based analytics tools.

45%

60%

of capital markets respondents to take on additional risk around product development.

think market and business risks will become more severe.

Cautious growth with risks on the horizon.

For more information, please visit: www.accenture.com/riskstudy2015 Source: Accenture 2015 Global Risk Management Study – Capital Markets respondents

© 2015 Accenture. All rights reserved.

http://www.accenture.com/riskstudy2015


61%of risk masters believe their risk function can play a critical role in enabling profitable growth.

54%of risk masters believe they can help enable this growth “to a great extent”.

35%of non-masters reportthe same view.

Around 1 in 10 respondents to the Accenture 2015 Global Risk Management Study are “risk masters”.

10%

61%of risk masters agree strongly that emerging risks, such as cyber and digital, are consuming a greater proportion of the CRO’s time.

35%of non-risk masters feel stronglyabout this.

61%of risk masters agree strongly that they employ dedicated technology specialists to help manage digital risk.

27%of non-masters feel the same.

Stronger focus on profitable growth

Stronger focus on emerging risks Growing digital experience

For more information, please visit: www.accenture.com/riskstudy2015 Source: Accenture 2015 Global Risk Management Study – all respondents

What makes a risk master?

© 2015 Accenture. All rights reserved.

Better handle on regulatory and compliance

More extensive use of analytics

37%of risk masters believe strongly that regulatory change is receding in relation to other requirements.

25%of non-risk masters see regulatory change receding in the same way.

36%of non-masters feel the same.

More risk masters make extensive use of analytics to manage key risk categories including fraud and financial crime, cyber and IT risk, and credit, market and regulatory risks.

Risk masters are also more likely to be investing heavily in digital technologies.



Contents

5

Source: Accenture 2015 Global Risk Management Study – Capital Markets respondents. Access at: http://www.accenture.com/riskstudy2015 Copyright © 2015 Accenture All rights reserved.

Contents

6

A Our methodology

B Understanding the evolving environmentand context for risk management

1. Strengthen collaboration and integration between risk management and finance

2. Effective operational risk management adding to future wave of business growth

3. Invest in talent

4. Cultivate a consistent, resilient and integrated risk culture

5. Keep data at the top of the priority list

6. Accelerate adoption of analytics

C Bridging the gap


Our methodology

7


Introduction

8

4th iteration of our Global Risk Management Study (2009, 2011, 2013)

2015 Global Risk Management Study: Paths to Prosperity

For the 2015 study, we surveyed470 CFOs, CROs, CEOs, CCOs, CDOs involved in theirorganization’s risk decisions

Our respondents came from North America, Europe and the AsiaPacific region

The survey focused on threeindustry sectors: Capital Markets, Banking and Insurance

In addition to the survey we conducted 50 qualitative client interviews

9Copyright © 2015 Accenture All rights reserved.Source: Accenture 2015 Global Risk Management Study – Capital Markets respondents. Access at: http://www.accenture.com/riskstudy2015

2015: Paths to Prosperity

9

Risk management continues to make a crucial shift but choices need to be made.

Seen as a collaborative partner to enable business goals instead of a controlling function to be circumnavigated.


Demographics of Survey

Source: Accenture 2015 Global Risk Management Study – Capital Markets respondents. Access at: http://www.accenture.com/riskstudy2015 10

Country Geography Regional target Respondents

Australia

Asia Pacific 150

30

China 30

Hong Kong 30

Japan 30

Singapore 30

UK

Europe 170

50

Germany 30

France 30

Spain 30

Italy 30

USA North America 150

100

Canada 50

Total 470 470

Company size Total

Between US$1bn and US$5bn 235

Revenues over US$5bn 235

Total 470

Respondent Total

Chief Risk Officer 141

Chief Executive Officer 78

Chief Financial Officer 147

Chief Compliance Officer 28

Chief Operations Officer 31

Chief Data Officer/CIO 45

Total 470

Sectors Sector count Asia Pacific Europe North America

Banking 150 50 50 50

Capital Markets 170 50 70 50

Insurance 150 50 50 50

Total 470 150 170 150

We surveyed 470 C-suite officers across all geographies and 12 countries.


Understanding the evolving environment and context for risk management

11

Source: Accenture 2015 Global Risk Management Study – Capital Markets respondents. Access at: http://www.accenture.com/riskstudy2015 Copyright © 2015 Accenture All rights reserved. 12

Key Findings and Challenges

• 45% of capital markets respondents - greater appetite for new product development risk

• Risk appetite greater for geographical expansion, major digital initiatives and business model change for respondents

• In our view, capital constraints and stiff competition are key drivers for reshaping and pursuing defensive growth efforts

Actions to Consider

• Incorporate risk at the strategic level to help identify areas for reshaping and improving capital efficiency and profitability

• Embed risk management’s perspective into building the operating models that are aligned with new business visions and strategies

• Understand the importance of current technology and channel options to customers

Figure 1: Change in senior management’s appetite for risk

Section 1:The new environment and context for risk management


Figure 2: The expected change in severity of risks facing the business over thenext two years



• Among capital markets respondents, severity of key risks are expected to increase in the next two years

• Market, business, and cyber risks; disruption from new technologies and operational risks are areas to be monitored closely in our view

• Surveyed capital markets companies highlight the need for greater preparedness to respond to a larger variety of threats

Actions to Consider

• Build upon current surveillance and monitoring capabilities, and enabling technologies for improved awareness of risks

• Develop surveillance models based on organizational culture rather than specific regulations

• Create availability of needed data and evolve from data existing in silos

Increase

62%

61%

58%

56%

56%

56%

54%

51%

51%

51%

51%

49%

48%

48%

45



14


• Regulatory compliance - greatest focus for the risk management function among capital markets respondents

• 36% of respondents have risk functions that go beyond regulatory compliance

• In our view, risk management is doing more to address the drive for greater growth within a heighten risk management environment

Actions to Consider

• Leverage output as well as business relationships from compliance activities and incorporate risk perspective in strategic planning and decision making

• Seek higher returns on investment in regulatory compliance infrastructure and capabilities in areas with higher risk appetite (e.g., new product development)

Figure 3: Senior management’s approach to delivering regulatory change programs



• Almost three-quarters of the institutions, where senior management does go beyond regulatory compliance, are keen to integrate with ongoing longer-term strategic change initiatives according to capital markets respondents

• Half the respondents reorganize their operating model in pursuit of strategic business success

Actions to Consider

• Continue to evolve to a cohesive approach that thinks holistically about business and regulatory outcomes, rather than individual or point solutions for compliance

• Invest in streamlining or automating manual activities in key risk areas (operational, credit) in order to increase valuable and constrained time for strategic imperatives

Section 1:The new environment and context for risk managementFigure 4: How senior management goes beyond regulatory compliance


Section 1:The new environment and context for risk managementFigure 5: Statement that best describes the stage of maturity of the institution’s risk-based decision-making


• In our view, achieving fully risk-based decision making can be critical to the institution’s business

• In two years’ time, only 25% of capital markets institutions surveyed expect to have moved to fully risk-based decision-making, a 10 point increase from the current level

Actions to Consider

• Build on the existing risk maturity of the organization, and the relationships with the business to help align with institution’s broader strategic planning

• Put CROs in strategic oversight roles to help connect plans across the business – this can help reduce time and effort wasted on projects that have to be scaled back later in process

Risk management primarily focused on regulatory needs/license to operate

Risk management mainly focused on regulatory needs/license to operate, but some focus on broader strategic risks

Fully risk-based decision making with strategic risk management inputs for major decision

Two years’ timeToday


Section 1:The new environment and context for risk managementFigure 6: Agreement with key statements

17


• Just 36% of capital markets respondents agree strongly that business heads and the CRO jointly own and manage risks in the organization

• 34% of respondents agree strongly that risk function and business have consistent views of risks

• The challenge in our view, find the balance between risk/reward and control/enablement

Actions to Consider

• Position risk management’s engagement as an opportunity for independent challenge to new business development

• Develop business case for strategic initiatives and provide insight by using scenario analysis and other forward looking analytical models to help enable improved decision making

Slightly agree

Strongly agree

Disagree slightly

Neither agree nor disagree

Disagree strongly

17%

8%

36%

39%

1%

25%

6%

28%

39%

1%

16%

4%

34%

46%

1%

19%

1%

45%34%

1%

16%

4%

34%

45%

1%

16%

4%

34%

45%

1%

145%

29%

49%

3%

%


Bridging the gap

18


Bridging the gap

19

To cope with the rising pace of digital and competitive industry challenges, risk management should focus on six key priorities:

Strengthen collaboration and integration between risk management and finance

Effective operational risk management adding to future wave of business growth

Invest in talent

Cultivate a consistent, resilient and integrated risk culture

Keep data at the top of the priority list

1 2 3 4 5 6

Accelerate adoption of analytics



• Coordination between finance and risk still has much room to improve

• In our view, finance and risk functions face many of the same challenges, ranging from operating models that enable long-term growth, to reducing complexity and duplication, to managing regulatory burdens cost effectively

Actions to Consider

• Focus on solving the same challenges from distinct and different perspectives - helps provide a balanced point of view

• Strengthen ties between finance and risk on strategic initiatives to drive the business toward an expansive and strategic view

Priority 1: Strengthen collaboration and integration between risk management and financeFigure 7a: Statement that best describes the stage of maturity of the institution’s risk and finance interactions

Finance and risk leaders do not jointly provide input into corporate strategy and ERM (Enterprise Risk Management) steering

Finance and risk leaders have a close working relationship, but do not jointly provide input into corporate strategy and ERM steering

Finance and risk leaders may at times be in opposition on some issues, but have a close working relationship and both provide input into corporate strategy and ERM steering




• While there are reasons for different data and models, overall, model development and data usage are not coordinated closely enough

• Increased focus on capital and liquidity issues implies the rise of the role of treasury – this can create the need for information to be shared between finance, risk and treasury

Actions to Consider

• Drive integration around multiple areas, such as day-to-day business decisions

• Look to coordinate consistent use of tools and processes by moving beyond silos

• Develop flexible processes so roles can adapt with agility to the evolving needs and circumstances of business strategy and operating models

Priority 1: Strengthen collaboration and integration between risk management and financeFigure 7b and 7c: The extent to which risk management has contributed to the organization achieving the following

Risk and capital models are developed largely independently within the risk and finance functions

Risk and finance coordinate closely on the development of risk and capital models, but the outputs of these models do not drive day-to-day business decisions

Risk and finance coordinate closely on the development and maintenance of risk and capital models which are used to drive day-to-day business decision making


Risk and finance data are maintained separately and other resources and capabilities (e.g. modeling, IT) are not used

Integration of risk and finance data sources is in progress, and other organization resources and capabilities are being considered

Risk and finance use integrated data sources, and other organization resources and capabilities are used to enhance efficiency



* “Survey: 71% of Companies Concerned Over Social Media Risks, But Only 36% Provide Employee Training,” Marketing Land, September 27, 2013. Access at: http://marketingland.com/survey-71-of-companies-concerned-about-social-media-risks-only-36-do-social-media-training-60212

22


• 82% of capital markets respondents say that emerging risks such as cyber and social media account for more of the CRO’s time

• Increased focus on operational risks, particularly those related to digital, big data and social media

• 71% of respondents are concerned with the risks of social media*

Actions to Consider

• Apply digital technologies to help manage operational risks, such as layering intra-day monitoring of key risk indicators with mobile dashboards and smart technology alerts

• Leverage surveillance technologies and capabilities to monitor the reputational risks of social media – and combine with efforts to develop formal risk assessment plans

Priority 2: Effective operational risk management adding to future wave of business growth

http://marketingland.com/survey-71-of-companies-concerned-about-social-media-risks-only-36-do-social-media-training-60212

http://marketingland.com/survey-71-of-companies-concerned-about-social-media-risks-only-36-do-social-media-training-60212



• Less than one in 10 capital management respondents have the internal resources needed, even in specialist areas such as modeling and emerging risks

• War for talent should intensify as institutions struggle to keep pace with the need for highly specialized skills and expertise in the risk function

Actions to Consider

• Develop specialist teams to address emerging areas of risk (cyber, digital, social media) head-on and learn by monitoring and analyzing real-time data and alerts

• Embed risk framework in an integrated group-wide platform for all employees to encourage discussions on emerging risks – which can then be reviewed and escalated

Priority 3: Invest in talentFigure 8: Statement that best describes the stage of maturity of the institution’s talent and capabilities

The risk team has insufficient talent resources to carry out the functions it is asked to perform

The risk team lacks internal resources in some specialized areas (modeling, emergency risks)

The risk team has internal resources even in specialized areas (modeling, emergency risks)




• Almost nine in 10 (88%) capital management respondents say they plan to increase the level of investment in risk management capabilities over the next two years

• Since 2013, there has been significant increase in investment – today only 10% report no change in investment over a two year time horizon

Actions to Consider

• Consider recruiting specialist skills from non-traditional recruiting pools, such as security specialists, strategic planners and data analysts – and augmenting with risk training

• Consider investing in digital technologies and analytics - drive insight with fewer staff

• Invest in developing cross-functional skills among existing risk personnel

Priority 3: Invest in talentFigure 9: The expected change to the total level of investment in risk management capabilities in the next two years

20132015

0%

62%

36%

10%

0%0%

62%

0%2%

26%



• Compared to two years ago, the largest shifts in recruiting among CM respondents is expected to be in the cyber/fraud area

• Security experts remain high in demand• Business analyst recruiting is expected to drop the

most in two years

Actions to Consider

• Acknowledge that the range of experience required by modern risk functions continues to broaden – the war for risk talent should shift in skillset

• Consider investing in agility as many talent requirements are a result of the apparent need for businesses to operate across functions and at high speed

Priority 3: Invest in talentFigure 10: The types of expertise recruited in the past two years, and the skills to be recruited in the next two years?

Past two years Next two years

39%

45%

42%

45%

31%

46%

57%

38%

52%

32%



• According to capital management respondents, risk functions are equipped with solid business skills, although there is much room for improvement

• Fewer than four in ten respondents say they have the skills required to a great extent in areas including social media, modeling, forecasting and data management.

Actions to Consider

• Consider developing skillsets in data management, forecasting, modeling in-house

• Cultivate risk management’s profile within the organization to help increase its attractiveness to ambitious managers

• Develop cross-staffing opportunities to move risk management people into the business and vice versa

To a great extent

Priority 3: Invest in talentFigure 11: The extent to which the risk management function has talent with the following skills

61%

54%

42%

42%

40%

39%

38%

38%

37%

3



• Capital markets respondents, much like banking and insurance respondents, still lag in developing a robust risk culture

• Just 10% of respondents say they have a strong and consistent risk culture

• Even in two years’ time, fewer than one in four (24%) expect to have reached this level of maturity

Actions to Consider

• Embed risk within the business as much as possible. This may mean using programs such as cross-staffing to integrate risk management individuals into the business and vice versa

• Include risk-based approaches in strategic decision-making

• Commit to break down siloes and increase enterprise wide transparency

Today Next two years

Priority 4: Cultivate a consistent, resilient and integrated risk cultureFigure 12: Statement that best describes the stage of maturity of the institution’s risk culture?

32%

10%

%

%

%

24

424

6%


Figure 13: The main obstacles to embedding a consistent, organization-wide risk culture

Priority 4: Cultivate a consistent, resilient and integrated risk culture


• Many significant challenges exist to creating a consistent organization-wide risk culture

• Fundamental and industry specific structures are major obstacles

• In addition, the human side of the equation – human nature, preconceptions of acceptable front office behavior – contribute to the other fundamental obstacles

Actions to Consider

• Balance risk and reward – align risk management’s goals with those of the wider business – for example in compensation

• Improve communication about risk and connect it to business teams throughout the organization by working side-by-side

• Recognize that creating and maintaining a risk culture is a continuous process

39%

32%

29%

28%

1%

36%

39%

23%


Figure 14: The extent to which challenges impede the overall effectiveness of the organization's risk management function

Priority 5: Keep data at the top of the priority list

29


• Capital markets respondents face numerous and specific obstacles

• Key challenges include managing the increased velocity, variety and volume of data as well as balancing the need for local compliance as a global institution

• Balancing the demand for being a control function with a commercial mindset is difficult

Actions to Consider

• Consider a Chief Data Officer to help streamline data gathering and use across the organization to break down siloes

• Consider operating models that combine decentralized and centralized approaches, based on specific business objectives

• Leverage digital technologies to add insight and perform manual and managerial tasks

To a great extent To some extent To a minimal extent No impact

266

3038

148

2751

265

2840

207

3538

298

2636

296

2145

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%


Figure 15: Whether the bank has a Chief Data Officer (CDO) with oversight of risk/finance/customer related data and analytics


30


• CDO is considered a key player by over three-quarters of surveyed capital markets respondents

Actions to Consider

• Pursue the potential of data – not just as part of an investigation into a problem, or as a regulatory compliance function

• Employ data to develop prevention systems• Enable a more forward-looking, predictive approach

77%

23

%


Figure 16: The skills and capabilities that will be most in demand by the risk management function over the next two years


3131


• Results are in line with capital markets industry trends observed, the increased velocity, variety and volume of data point to requisite skills to manage

• Cyber risk understanding should become more important, along with knowledge of digital technologies

• Business skills remain high in demand

Actions to Consider

• Expect tightness in the current market for these skill sets

• Develop cross-skilling programs since the variety and range of risk, digital and business skills is difficult to find

• Invest in the retention and building of skills

38%

36%

34%

31%

29%

22%

21%

21%

18%

11%


Figure 17: Risk management‘s use of data and analytics to address the various types of risk



• Fewer than a third of capital markets survey respondents currently make extensive use of analytics tools as they attempt to address key risks

• Credit, regulatory, liquidity and market risks top the list of using analytics to a great extent

• Legal risks and fraud/financial crime top the list for analytics being used moderately

Actions to Consider

• Build upon the lessons learned and benefits of analytics in key traditional risk areas – extend to business, operational and strategic risks

• Recognize that overall industry use of advanced analytics is widening

• Use analytics and insight to help inform business decisions and build relationships

Extensive Moderate Limited Not yet

205

3141

205

3241

195

3440

265

1947

276

2442

286

2241

254

3338

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%


Figure 18: Statement that best describes the stage of maturity of the institution’s risk analytics

Priority 6: Accelerate adoption of analytics

33


• Less than 10% of capital management respondents report that consistent, updated data is available to decision makers across the organization on an ongoing basis

• Even less report that analytics is integrated with strategic planning and decision making

Actions to Consider

• Consider investing time, effort and funds to standardize processes, systems and improving controls to help deliver high quality data

Today Two years’ time

9%

26%

27%

9%

9%

30%

8%

26%

34Copyright © 2015 Accenture All rights reserved.Source: Accenture 2015 Global Risk Management Study – Capital Markets respondents. Access at: http://www.accenture.com/riskstudy2015

34

To learn more about the study and to obtain your copy of the Capital Markets Report please go to: www.accenture.com/capitalmarkets-riskstudy2015

http://www.accenture.com/capitalmarkets-riskstudy2015?c=glb_accglbsldshr_10000008&n=smc_0515

http://www.accenture.com/capitalmarkets-riskstudy2015?c=glb_accglbsldshr_10000008&n=smc_0515


An evolving landscape

35


2005

2015

VS

Decisions informed by past events

Risk only outlook

Focused on credit, market and operational risk

Narrow definition of operational risk

Clear demarcation between three lines of defense

“Left brain” – quantitative; analytical approach

Prioritized control and prevention

Tactical attitude: centered on day-to-day risks

Spreadsheet-based management

Digital? What’s digital?

Looking forward, with “next day” thinking

Recognizing risk AND inherent opportunity

Aware of a growing range of emerging risks

More comprehensive definition of operational risk

Three lines of defense, with fluid interaction embedded in the business

“Left AND right brain” – creative, innovative understanding

A balance of control, prevention, and enablement

Strategic awareness: focused on long-term business challenges

Increasingly integrated data sources

Emphasis on digital risks and opportunities

The Risk Landscape

Risk management in 2025Analytics now permeates decision

makingCompanies are exploring robotics and artificial intelligence to manage transactional risks

Behavior prediction helps to effectively inform risk management

Rise of the Chief Risk and Return Officer

Risk management is the career path to the C-suite

Single data source drives reporting and analytics activities

For more information, please visit: www.accenture.com/riskstudy2015 © 2015 Accenture. All rights reserved.


37Copyright © 2015 Accenture All rights reserved. 37

Industry: Capital Markets

DISCLAIMER:

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About Accenture

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2015 Global Risk Management Study

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Accenture 2015 Global Risk Management Study: Capital Markets Key Findings and Insights