Financial institutions lagging in risk management.

Financial services companies have pushed risk management further up the corporate agenda and now regard reputational risk as the greatest threat to their market value, according to a new study by PricewaterhouseCoopers (PwC) and Economist Intelligence Unit (EIU). Despite this, quantifiable risks, like credit and market risks, still absorb the most attention among institutions.

In a survey of more than 130 senior executives in financial institutions worldwide, 82% agreed that awareness of risk is now more pervasive in their organizations than it was two years ago and 73% agreed that their organizations define their appetite for risk more clearly. However, the results are shrouded in some concerns.

The survey identified four reasons why risk management remains primarily focused on meeting regulatory requirements and only after that is managed, on protecting and enhancing the value of the franchise:

* A culture of risk awareness has yet to be established

* Compliance isn't being turned into a competitive advantage

* The importance of governance is underestimated

* Quantifiable risks are still the focus of too much attention.

"Financial institutions have made significant strides since our last risk management survey two years ago," said Phil Rivett, global leader for PwC's banking and capital markets group. "But our latest findings have revealed that too many organizations are still concentrating on calculating market and credit risk to a further order of accuracy, and too few on understanding the totality of the risks they face in order to give themselves a competitive advantage."

Rivett also noted that companies have to see the big picture, to anticipate and avoid risks when possible, or at least have the processes in place to soften their impact.

The study, entitled Uncertainty tamed? The evolution of risk management in the financial services industry, also revealed that many central risk groups did not have much input in the strategic decision making of their companies.

For more information, or to download a copy of the survey, visit www.pwc.com/financialservices.