Risk function key to navigating pandemic

Many firms have taken action to react to the risks, challenges and stresses caused by the COVID-19 pandemic, according to KPMG’s annual Risk and ICAAP benchmarking survey. Two-thirds (65%) of firms performed additional stress tests, with these leading to 30% taking management actions to increase resources of both capital and liquidity.

The survey found that only just over a quarter of firms (28%) saw an increase in operational risk events and 15% reported an increase in size of operational risk losses, despite the scale of the pandemic. However, it has led firms to reassess their ICAAP risks, with 58% re-assessing the inputs into operational risk scenarios, and 28% ultimately opting to hold more capital directly as a result. While it is the larger firms who have performed more stress testing and enacted management actions, it is the smaller ones who have made more efforts to reassess the ICAAP and hold more operational risk capital.

David Yim, asset management partner at KPMG UK, and author of the report, said: “There is no escaping the impact COVID-19 has had on the industry, but it’s clear risk functions have played a vital role in helping firms navigate the crisis. The widespread response by firms – 92% of participants took action to address the impact on their risk profile and financial resilience – demonstrates risk management in action and the value that an embedded risk framework brings during periods of stress.”

Despite the delay to the incoming new IFPR (Investment Firm Prudential Regime) regulation which is now due to come into force in January 2022, it will still present challenges for investment firms. While most (70%) have considered the impact of the regulations, the focus has been on capital and liquidity and only 30% of firms to date have performed detailed analysis to fully assess the liquidity and K-factor requirements.

Yim added: “The other components of the IFPR around governance, remuneration, reporting and disclosure, including new ESG requirements, may contain surprises for the firms who have focused only on quantitative changes so far. Only 13% of firms have fully assessed the remuneration policy and pay-out rule requirements under the IFPR, while these new requirements will likely bring significant changes for some firms’ reward structures. While the implementation date has moved back, firms should not delay and instead use the time to adopt a more strategic than reactionary approach to realising the new regime.”

    Share Story:

Recent Stories

Are property insurers ready for timber
The Structural Timber Association is gearing up to help all stakeholders in the construction supply chain to fully appreciate the advantages of building in timber, how to deliver such projects and most importantly to understand and manage the risks.

The changing face of BC and WAR
The working environment has changed quite dramatically for many over the last six months. With social distancing and the rise of homeworking, it is not just how businesses operate that has changed, but also how they recover. In this podcast we discuss some of the challenges created by the quick shift to home working, why the office may not have seen its last days and how the current environment can impact the ability of a business to recover.