June 2015

Regulation. Compliance. Risk – Business and Banks Face Common Challenge
Australian corporates continue to focus more closely on risk management, compliance and keeping ahead of the ever changing regulatory framework. Bank’s lending to businesses are no different, evidenced by compliance related headcount increasing twice as fast as other divisions.

Following ASX corporate governance guidelines now including a requirement to recognise and manage risk, CFO’s and treasurers have reacted swiftly and take their obligations much more seriously. A number of major enterprises undertake regular ‘Risk Appetite workshops’ with their boards to ensure risk management is firmly integrated into the corporate strategy.

Fallout recently experienced by IOOF and NAB’s UK operations clearly demonstrates the significant downside risk facing management if material operational and business risks are not prepared for and managed adequately.

Reputational damage is in most cases impossible to counteract, resulting in risk management procedures emerging as an increasingly important business function as it becomes inextricably linked with brand management.

Continuity and contingency plans are coming to the fore as businesses seek to minimise the market share impact of major events. Where insurance was traditionally enough to cover an ‘uncontrollable event’, the flow on impacts are now much better understood and strategically prepared for.

Flow on impacts include market share losses, management distraction due to plant rebuild, time to reach full capacity and intangible elements such as brand management or mind share loss.
Even the most innovative and well-structured insurance policies struggle to capture longer term damaging impacts in particular.

A May 2015 survey of the Top 500 institutional enterprises conducted by East & Partners indicates one in two CFO’s and treasurers believe ASIC should hand over its regulatory and assistance role, compared to 12.2 percent who felt ASIC should handover its corporate watchdog role.

When asked if ASIC was effective in regulating or assisting business, CFO’s scored ASIC at 2.88 on a scale where 1 is effective and 5 is ineffective.

These results support the notion that ASIC is successfully fulfilling its role as a corporate watchdog but not doing enough to regulate and assist businesses directly.

Risk management strategy is front and centre with most organisations, providing impetus for new primary research streams that investigate the way different industries fundamentally treat risk.

Generating unique data that calculates the precise external spend of Australian corporates risk management and compliance obligations is a key priority in the 2015/16 financial year.

What this figure actually represents in terms of risk management advisory or product based decisions presents is critical for corporates seeking clarity in terms of peer benchmarking and managing pressing risk management, compliance and regulatory challenges facing corporates across all industries and sectors.
Should ASIC hand over its corporate watchdog role or business regulation role to another agency?
% of Total
  Institutional Segment
(N: 147)
Yes - corporate watchdog role 12.2
Yes - regulatory / assistance role 46.9
No - neither 51.0

Note: sums to over 100 percent due to multiple responding

Source: East & Partners Institutional Business Banking Research, Q2 2015


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