What would it take for you to ‘be fearless’?
05 December 2016
With RiskMinds just around the corner, this feels like a good time to step back and consider the current state of risk management in Financial Services.
The more I look at the financial services (FS) sector, the more I begin to wonder if we’ve forgotten what FS is all about. It’s about risk. Firms take well-educated, carefully controlled, managed risks – whether it’s in offering loans to customers, trading, dealing in currency and so on – and as a result of taking these risks, they earn returns. Not always, of course – that’s the thing about risk; it’s risky.
Risk is why the financial services industry exists – without risk, there’d be no FS sector. But since the financial crisis the ability and willingness of FS executives and firms to deal in the risk business has been steadily eroded. Regulation since 2008 has been all about discouraging risk-taking – and FS executives, especially risk executives, are so preoccupied with the possibility of putting a foot wrong (or someone else putting a foot wrong on their watch) that they’re afraid to make the big decisions the sector so patently needs.
To me, the FS sector feels like it’s drifting. Genuine growth is rare – yes, FinTech firms and new business models have entered the market and are changing the way in which firms engage with their customers, but established firms are unwilling or unable to react. Regulators may be happy with risks so heavily managed, but what about investors? And the firms themselves? How can any firm carry on paying decent dividends if they can’t work out how to grow?
Of course, the world is a very uncertain place for a long list of reasons. But we’re at a stage where some big, important strategic decisions are needed.
Firms have a choice – they can put a bet on the future or they can carry on as they are, avoid making challenging strategic plans and do nothing. But we should also remember that there are huge risks in doing nothing.
As a first step, the industry need to become comfortable with risk again. Firms need to reclaim the habit of what they do best. That’s why, at PwC, we’re asking executives ‘what would it take for you to be fearless’ and get back in the business of taking carefully controlled, well-managed risks?
We all need to go back to the first principles of FS: informed risk taking. There’s no FS without risk, and FS firms know risk better than anything else, so what are we afraid of?
I will be talking more about this at RiskMinds on 6 December 2016 in Amsterdam. Please get in touch if you’d like to find our more or comment below and let me know your views.