Familiar concerns remain a top threat for capital markets risk leaders but today’s changing risk environment gives them a new spin, according to Accenture’s 2019 Global Risk Management Study for Capital Markets. Regulatory requirements and cyber attacks are one and two on the list of concerns, with changing investor sentiment and non-traditional assets right behind them.
Today’s complex, data-rich risk environment poses a general threat to capital markets risk leaders and is complicated by worries that new technology—while promising solutions to many risk challenges—can bring unforeseen consequences.
Here’s a look at the top concerns cited by capital markets risk leaders:
No room for complacency
Evolving regulations top the list of concerns for capital markets risk managers. While it’s a familiar risk, one into which many capital markets risk functions have already invested time and effort, ongoing compliance work is seen as mandatory—particularly given large compliance fines levied outside of financial services.
"Conduct risk, fraud and financial crime are still huge issues for capital markets institutions. And they are still feeling the capital impact of previous regulation."
— Mark Wheaton, Managing Director – Accenture Financial Services, Finance & Risk
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While the evolving regulatory climate is a top concern, only 10 percent of capital markets study respondents feel highly confident about managing its impact.
Preventing attacks
The increasing frequency and sophistication of cyber attacks is the second leading concern for capital markets risk managers. Unlike retail banks, capital markets firms aren’t sitting on reams of customer data. But cyber attacks present unique risks for capital markets providers, including possible trade disruptions or compromises to major international payments.
Particularly troubling: Capital markets firms are less prepared to manage cyber risk than any other risk measured. Only 5 percent of surveyed capital markets risk leaders feel highly confident in facing cyber attacks.
Addressing complex, non-traditional concerns
Risk leaders in capital markets firms cite changing investor sentiment and growing interest in complex portfolios or non-traditional investments as their third and fourth concerns. As investors seek higher yield returns, they creep up the risk curve, creating headaches for risk managers.
Auto loans illustrate the challenge. A record number of auto loans, $584 billion, were originated in 2018,1 but as quantity has increased, the quality of those loans has dropped. How much do capital markets firms want to be exposed to potentially toxic debt?
Another example: Investors’ increasing appetite for Environmental, Social and Governance (ESG) investing. To keep up, capital markets firms should offer these assets—but they would have to evaluate ESG risk criteria in the process.
LIBOR: Not to be ignored
LIBOR is to retire in 2021, whether capital markets providers are ready or not. Non-risk business leaders have recognized the challenge and are asking their risk leaders for help—so being ready is the preferable approach.
Risk leaders aren’t anticipating the impact of LIBOR retirement as well as they should be—from a business or a technical implementation perspective.
Some capital markets risk leaders do not acknowledge LIBOR as a major threat. Our study finds only 8 percent of capital markets risk leaders viewing LIBOR as a top-three concern, despite its inevitability and complexity.
Defining your sphere of control
In a fast-changing climate where unknown, interconnected risks are multiplying faster than ever, one of the best strategies for capital markets risk leaders is to prioritize what matters most. The risk function cannot protect everything; risk leaders should emphasize preparation and planning instead of prediction. That is how they can manage their sphere of control.
See the full report to learn more about next steps for capital markets risk managers.
With interconnected risks accelerating faster than ever, how can risk functions keep up? Our 2019 Global Risk Management Study for capital markets provides insights to help functions prioritize, prepare and proactively scan the horizon for the next threats.
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