US risk spend hits new peak reports DTCC
Spending on risk mitigation has increased
US Financial institutions are spending more on risk mitigation than ever before, according to a new study by post-trade services utility the DTCC.
The top five risks cited by broker dealers, banks, mutual funds and hedge funds participating in the survey were the impact of new regulations, cyber security, a significant business continuity event, disruption or failure of a key market participant, and a major compliance or governance event.
Participants were particularly focused on the pressure to address the impact of new regulation and cyber security. “With cyber security, regulation changes and liquidity issues, we are expending a large number of resources in technology, training, staffing and working with state and federal government on solutions,” said one respondent.
Estimated budgets for systemic risk mitigation ranged from less than $1 million for 36% of respondents, $1-5 million for 35% to more than $5 million for 29%. None indicated that their firms had decreased spending. Some 63% of respondents classified their firm’s ability to identify, assess and manage emerging risks as “developing” and 33% ranked their firms as “mature”.
“[We are] working hard to ensure excess liquidity is available and actively monitoring counterparty risk and exposure levels,” said another respondent. “We are also spending significant time and energy trying to make sure we are complying with regulatory requirements, and further documenting and enhancing procedures to provide comfort to auditors and examiners.”
Only 9% of respondents said they thought a high impact market event in the next year was “likely”. However, according to the DTCC, the results suggest that the shocks of the last few years have created a more cautious culture that is determined not to be caught out again.
“Even though concerns about a near-term destabilising market event appear to be abating, it is gratifying to see that this has apparently not translated into complacency and that the industry is becoming more diligent about protecting itself from such occurrences,” said Michael Leibrock, chief systemic risk officer at the DTCC. “Of the individuals we polled, 70% reported that their firms had committed more resources into systemic risk management activities over the past 12 months. This trend might indicate that systemic risk protection is becoming firmly embedded in corporate culture and standard business practices.”
The DTCC Systemic Risk Barometer analysed information from 218 respondents including broker dealers, banks, mutual funds and hedge funds as well as insurance companies and service bureaus.
