Global Risk Management Survey - Investment Management Spotlight | Deloitte

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Global Risk Management Survey 10th Edition - Investment Management Spotlight

Heightened uncertainty signals new challenges ahead

The 10th edition of the Global Risk Management Survey is the latest installment in Deloitte's assessment of the state of risk management in the global financial services industry. In this article we take a closer look at the Investment Management sector.

Today's issues in managing risk

Respondents were asked how challenging were a series of issues today for their firm in managing risk in its investment management business. The items most often rated as extremely or very challenging concerned IT systems and data: IT applications and systems (50 percent, down from 55 percent in 2014) and data management and availability (36 percent, down from 42 percent in 2014). See figure below. The solution to these problems begins with treating data as a valuable organizational asset. The areas where respondents felt their institutions had a more mature program to manage risk in their investment management business and were less challenging were resourcing (25 percent, down from 33 percent in 2014), managing investment risk and its impact on portfolio construction risk (25 percent), 62 and risk governance (19 percent, down from 24 percent in 2014).

Global Risk Management Survey 10th Edition

Assessing the challenges of managing risks

Risk governance

The relatively small percentage of respondents who considered risk governance to be extremely or very challenging for their investment management business is a positive development. Given its cornerstone role in risk management, excellence in risk governance needs to be a strategic priority for firms, and governance practices are increasingly being reviewed by regulators. The risk governance approach implemented at an investment management firm represents that firm’s strategic approach to organizing, reporting, controlling, and mitigating risk. Everything a firm does across all three lines of defense to manage and report risk, either wittingly or unwittingly, falls under risk governance.

Risks posing the greatest challenges

Looking forward over the next two years, respondents were asked to identify the three risk types that will present the greatest challenges for the investment management business in their firm. Regulatory/compliance (81 percent), was cited most often as among the top three risk types that will present the greatest challenges. The risk that was rated second most often by respondents as among their top three risks over the next two years was investment (72 percent). Despite the recent focus on cybersecurity and liquidity risk, relatively few respondents rated them as among the risks that will pose the greatest challenges to their firm’s investment management business.

Oversight of investment risk

Respondents reported that their firm assigned a wide range of responsibilities to the individual or individuals responsible for oversight of investment risk with the most common responsibilities being monitor compliance with investment guidelines related to investment risk (86 percent); develop and implement the investment risk management framework, methodologies, standards, policies, and limits (78 percent); manage stress-testing process, including governance, methodology, and reporting (72 percent); and meet regularly with governance committees responsible for overseeing investment risk management (72 percent).

Managing liquidity risk

Managing liquidity risk has become a greater focus for regulators in all financial sectors, including investment management. However, relatively few respondents believed that liquidity risk management related to investment risk presented significant challenges for their institution. The item that was rated most often as extremely or very challenging with respect to liquidity risk management related to investment risk was classification of fund asset liquidity, including determining the assumptions used when bucketing holdings into business/calendar day categories and multiple liquidity levels of the same position (31 percent).

Operational risk management

When asked to select the three risks that will pose the greatest challenges for their firm over the next two years, 56 percent of respondents named operational risk, making it the risk cited third most often. When asked about specific components of operational risk management, 50 percent of respondents at institutions providing investment management services said that responding to rising threat of cybersecurity risk and its impact on the confidentiality, availability, and integrity of data and information system was extremely or very challenging, making it the highest rated issue. While operational risk exists in all businesses, the tough call for investment management firms is right-sizing operational risk management.

Extended enterprise risk

More than three-quarters of respondents at investment management firms considered risk transparency and oversight over third-party service providers as challenging, including 25 percent who rated it as extremely or very challenging, compared to 41 percent who rated it highly as a challenge in 2014. Thirty-one percent of investment management respondents considered third-party risk to be one of the top three challenges over the next two years for their institution’s investment management business. The types of third-party vendors that investment management respondents said were most likely to receive monitoring either continuously or three or more times a year, were pricing vendors (56 percent) and custodians (54 percent).

Questions?

For more information, please contact Ivo van der Veen via ivanderveen@deloitte.nl / +31882886058 or Eelco Schnezler via eschnezler@deloitte.nl / +31882885220

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