FSA’s Financial Risk Outlook for 2009

This week, Britain’s primary financial regulator – the Financial Services Authority (“FSA”) – issued its Financial Risk Outlook for 2009.  The FSA provided several key messages related to effective risk management.  

  1. Senior Management should ensure appropriate risk management is undertaken and that there is a clear understanding of the underlying risks to their business model, particularly risks associated with complex hedging strategies. Firms need to satisfy themselves that key risks are appropriately managed and continually re-assessed as financial market and economic conditions evolve.
  2. Stress testing and scenario analysis should form an integral part of firms’ risk management, business strategy and capital planning decisions. It is of particular importance in this unpredictable environment, when the financial sector is vulnerable to further shocks, that firms also consider the implications of deteriorating economic conditions and the long-term viability of and weaknesses present in their business models. In addition, the financial sector and economy will also remain vulnerable to potential shocks, such as a large-scale terrorist attack. Firms should continue to consider such risks in their business planning to ensure effective plans are in place for dealing with these shocks.  
  3. Strategies need to be underpinned by strong risk management systems and controls for all areas of risk: credit, market and operational risk; conduct of business risks; compliance with relevant rules, codes and standards; and managing risks of fraud and financial crime.
  4. Remuneration policies should be in line with sound risk management. Firms should ensure that staff are not given incentives to pursue higher-risk strategies than are consistent with the firm’s overall risk appetite, undermining the impact of systems designed to control risk to the detriment of shareholders and other stakeholders, including depositors, creditors and ultimately taxpayers.

These are solid principles not only for companies in the UK, but for companies across the globe.  Visit www.WheelhouseAdvisors.com to learn more about how we can help your company Navigate Successfully™.

fsa-financial-risk-outlook-2009

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About Wheelhouse Advisors
Wheelhouse Advisors LLC is the publisher of The ERM Current™, an online publication and blog dedicated to providing the latest updates on current trends in Enterprise Risk Management & Control. Wheelhouse Advisors provides cost-effective Enterprise Risk Management & Control solutions to both large and mid-size corporations. To learn more about Wheelhouse Advisors, please visit our web site at www.WheelhouseAdvisors.com.

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