Risk management and compliance spending rising – survey

More financial institutions are boosting spending on risk management and compliance than a few years ago, but how firms are spending also varies by size of firm, according to a new survey by Deloitte Touche Tohmatsu Limited (DTTL).

About two-thirds of financial institutions surveyed reported higher spending on risk management and compliance, compared with 55 percent in 2010, Deloitte said in a press release. Interestingly, however, spending priorities in many cases reflected the size of the firm. Firms with less than $10 billion in assets are boosting spending that will help them build the capabilities to address new regulatory requirements that were earlier applied to larger institutions. Larger financial institutions, meanwhile, have faced years of regulatory scrutiny and have continued their focus on areas including risk governance, risk reporting, capital adequacy and liquidity, Deloitte said. 

The survey of chief risk officers or their equivalent and 86 financial institutions was conducted from September to December 2012 and represented a range of financial services sectors, including banks, insurers and asset managers, Deloitte said in a press release. Aggregate assets represented by the survey topped $18 trillion.

Spending increases for risk management are likely to continue. Deloitte said 58 percent of survey respondents said their institutions plan to increase risk management budgets over the next three years. For some firms, that spending will be substantial. About 17 percent said they expect annual increases of 25 percent or more. Risk management is already a major component of some institutions. Deloitte said that 39 percent of large institutions reported having more than 250 full-time employees in risk management functions.

Undoubtedly, some of the increased spending on risk management has been related to stress testing solutions.

The survey found that stress testing has become a “central plank” in many institutions’ efforts to manage risk. About 70 percent of respondents said stress testing informs the setting of their risk tolerances, and 80 percent said stress testing enables a forward-looking assessment of risk.

See more on the survey here.