LONDON--(BUSINESS WIRE)--The sheer volume of regulations and complexity of the international regulatory environment have made the management of regulatory risk one of the most pressing concerns for global businesses ahead of natural disasters, terrorism and other operating risks, according to a new global survey of senior executives conducted by the Economist Intelligence Unit (EIU) and co-sponsored by The ACE Group of Companies (NYSE:ACE). According to ACE, the impact of the world-wide credit crisis is expected to have a further impact with new and more stringent regulation for those organisations in the financial services sectors.
The survey of 320 senior professionals with responsibility for risk reveals a paradoxical view of regulation. While the vast majority of respondents recognize that it is a necessary part of the economic landscape, they also believed that regulation posed serious challenges for their businesses in terms of managing the risks associated with compliance. In view of the growing demands and complexity of regulation, it’s perhaps not surprising that more than eight in ten respondents claimed to have increased their focus on regulatory risk over the past three years and a similar proportion expected this trend to continue for the next three years.
Respondents to the survey cited concerns about the quality and quantity of regulation being promulgated as well as the sheer volume of regulations faced by businesses operating internationally. Juggling multiple compliance priorities and areas of overlap or conflict between different regulations make managing regulatory risks difficult and time-consuming. Nearly two-thirds of those questioned said that the complexity of the regulatory environment was the main factor hindering their ability to manage regulatory risk effectively, while just under half (46%) cited the lack of regulatory harmonization between multiple jurisdictions.
Commenting on the challenge of managing multiple regulatory regimes John Keogh, Chief Executive Officer, ACE Overseas General, said: “The survey shows that while regulation to protect the interests of business, the consumer and global economies is fundamental and can have a positive impact on business if managed effectively, the growing burden and complexity of compliance requirements is now a major business issue. More than ever, it is crucial that the global regulatory systems work well and work together, and businesses need to look carefully at the resources and processes they have in place to better manage regulatory compliance.”
The level of resources required to manage regulatory risk was a focus for respondents. When asked which categories of regulation were the most resource-intensive, those relating to audit and reporting, such as Sarbanes-Oxley in the U.S., the International Financial Reporting Standards, Basel II and Solvency II, topped the list (75% of respondents). Workforce regulation, including European Union (EU) “working time” directives and environmental legislation, such as the WEE (Waste Electrical and Electronic Equipment Regulations) Directive were also shown to be costly to implement and manage.
Mr. Keogh said: “Some businesses are more effective than others at streamlining their processes to tackle the myriad of regulatory regimes, but many still face significant and growing challenges with finite resources to manage the impact on their business. While the survey does indicate that lessons can be learned in the way risks are managed, there are messages for the regulators to consider, including greater harmonisation of regimes to help meet the needs of multinational businesses.”
Respondents in the financial services sector (47%) reveal the full extent of managing regulatory risks in the current global credit crisis. Businesses in this sector made the most sizeable investment in managing regulatory risk with more than half (56%) having allocated significantly greater resources over the past three years, compared with 32% from other industries. Respondents believe a substantive regulatory response to the crisis is inevitable. The vast majority (78%) indicated the most likely intervention will be the imposition of new liquidity standards. Three-quarters expect higher capital ratios to take into account off-balance sheet vehicles and nearly 70% see stricter regulatory controls on the loan origination process being enforced. About half of respondents cited other actions, including closer oversight of ratings agencies (53%) and restructuring of the regulatory system itself (49%), while just 16% expect imposed limits on pay of financial professionals, despite widespread sentiment that incentives have exacerbated the current situation.
Despite the many challenges they face with managing regulatory risk, respondents recognize that they can derive business benefits from their compliance activities, including more efficient business processes, cited by more than half (55%) of respondents; competitive advantage from implementing best practices (48%); and the ability to anticipate future regulatory change (46%).
From Burden to Benefit: Making the Most of Regulatory Risk Management is available free to download atwww.eiu.com/globalriskbriefing.
Notes to editors:
The ACE Group of Companies is a global leader in insurance and reinsurance serving a diverse group of clients. Headed by ACE Limited (NYSE: ACE), the ACE Group conducts its business on a worldwide basis with operating subsidiaries in more than 50 countries. Additional information can be found at: www.acelimited.com
About the survey
From Burden to Benefit: Making the Most of Regulatory Risk Management, is a new Economist Intelligence Unit survey and report, sponsored by ACE, KPMG, SAP and Towers Perrin. The report examines current thinking around regulatory risk management and explores the approaches that companies are taking to identify, assess and manage the risks that they face, both within their organisation and among their broader partner network.
The research for this report is based on an online survey, conducted in September 2008, of 320 executives around the world. The survey sample was senior: 50% of respondents were C-level executives such as CEOs, CFOs, and CROs, and the balance consisted of risk managers, senior vice presidents, heads of business units and other senior managers. A range of industries was represented, including financial services, manufacturing, information technology and professional services. Most of the firms they work for are large: 60% of surveyed executives work with firms having annual revenue of at least US$500m.
About the Economist Intelligence Unit
The Economist Intelligence Unit is the business information arm of The Economist Group, publisher of The Economist. Through our global network of about 650 analysts, we continuously assess and forecast political, economic and business conditions in 200 countries. As the world's leading provider of country intelligence, we help executives make better business decisions by providing timely, reliable and impartial analysis on worldwide market trends and business strategies.