KPMG survey: Some 44 percent of firms stress testing against Brexit
23 November 2018 London
Image: Shutterstock
Some 40 percent of firms have a Brexit relocation plan, according to a recent KPMG benchmarking survey.
The annual risk and internal capital adequacy assessment process benchmarking survey, entitled found that in 2018, every firm surveyed had conducted macroeconomic stress tests for Brexit.
This was compared to responses in 2017, where 44 percent of firms said they had stress tested their business against Brexit.
The survey also found operational risk modelling has overtaken governance as the number one concern in feedback from prudential regulatory visits.
The survey found asset managers have started to prioritise operational risk above other challenges.
KPMG found capital assessments have improved due to the use of models and said the regulator is aware the same can happen with operational risk.
However, KPMG said: “There is a worrying misalignment between firms’ risk management frameworks and their stated risk appetite suggesting that this still isn’t being discussed in the boardroom.”
David Yim, partner and author of the report, commented: “It’s encouraging to see that firms have introduced models to more appropriately estimate their capital positions, they’re stress testing their businesses and they’re creating more realistic wind-down plans.”
He added: “However, despite the progress, there are worrying indicators that operational risk still isn’t a boardroom issue. Perhaps even more worryingly, the regulator routinely found that many firms don’t understand the risk management models they are using.”
“The disparity between firms’ stated risk appetites and risk frameworks may sound like a back office issue, but it isn’t. It means firms are either routinely taking more risk than they are comfortable with, or they will be suffering significant opportunity costs.”
Jon Holt, head of financial services at KPMG, said: “The asset management sector is responding to the fact that risk awareness and management has to be more than a tick-box exercise.”
He added: “However there is a way to go in a number of areas, for example, 17 percent of firms do not have a liquidity management framework even though it has long been a regulatory requirement.”
The annual risk and internal capital adequacy assessment process benchmarking survey, entitled found that in 2018, every firm surveyed had conducted macroeconomic stress tests for Brexit.
This was compared to responses in 2017, where 44 percent of firms said they had stress tested their business against Brexit.
The survey also found operational risk modelling has overtaken governance as the number one concern in feedback from prudential regulatory visits.
The survey found asset managers have started to prioritise operational risk above other challenges.
KPMG found capital assessments have improved due to the use of models and said the regulator is aware the same can happen with operational risk.
However, KPMG said: “There is a worrying misalignment between firms’ risk management frameworks and their stated risk appetite suggesting that this still isn’t being discussed in the boardroom.”
David Yim, partner and author of the report, commented: “It’s encouraging to see that firms have introduced models to more appropriately estimate their capital positions, they’re stress testing their businesses and they’re creating more realistic wind-down plans.”
He added: “However, despite the progress, there are worrying indicators that operational risk still isn’t a boardroom issue. Perhaps even more worryingly, the regulator routinely found that many firms don’t understand the risk management models they are using.”
“The disparity between firms’ stated risk appetites and risk frameworks may sound like a back office issue, but it isn’t. It means firms are either routinely taking more risk than they are comfortable with, or they will be suffering significant opportunity costs.”
Jon Holt, head of financial services at KPMG, said: “The asset management sector is responding to the fact that risk awareness and management has to be more than a tick-box exercise.”
He added: “However there is a way to go in a number of areas, for example, 17 percent of firms do not have a liquidity management framework even though it has long been a regulatory requirement.”
NO FEE, NO RISK
100% ON RETURNS If you invest in only one asset servicing news source this year, make sure it is your free subscription to Asset Servicing Times
100% ON RETURNS If you invest in only one asset servicing news source this year, make sure it is your free subscription to Asset Servicing Times
