ERM programmes can help to safeguard businesses against losses, earnings surprises and reputational damage. This includes strengthening the management of credit, market and other financial risks, along with more effective controls over less quantifiable, though equally hazardous, non-financial risks such as fraud, systems failure and breaches in compliance with regulatory and corporate guidelines.
ERM can also enhance the basis for decision-making through a clearer articulation of businesses objectives, more focused management information and a better understanding of the trade-offs between risk and reward. Indeed, rather than stifling enterprise, effective ERM can provide the assurance that enables companies to take more controlled risks and capitalise on opportunities.
Regulation is providing a further catalyst for the development of ERM.
Basel II and
Solvency II herald a more risk-orientated approach to capital management. The growing alignment between governance, financial reporting and risk management is being reinforced by
Sarbanes-Oxley.
Aligning Sarbanes-Oxley with an ERM framework can help to provide a reliable and cost-effective basis for sustainable compliance. Effective ERM capabilities can also help to provide a sound platform for meeting the demands on risk measurement, management and disclosure created by Basel II and Solvency II, along with the risk-related elements of IFRS 7 (Financial Instruments: Disclosures).
In particular, ERM can provide the necessary infrastructure of information and assurance. This includes the ability to bring the data from internal models and management information systems up to an auditable standard for external communications. Robust ERM can also help to control risks and hence reduce the regulatory capital demands on the business.
How PwC is assisting financial services organisations
PwC has exceptional experience in the implementation and development of ERM frameworks across all financial services sectors. This includes the development of the process, information and organisational capabilities underpinning effective ERM, along with helping to align ERM with governance and compliance.
