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Asia-Pacific businesses to move risk management responsibilities to first line of defence
Businesses in Asia-Pacific are planning to move risk management activities to front line units over the next three years, rather than keep responsibility with dedicated risk and compliance teams, according to a recent PwC survey.
The Asset 15 Sep 2017

Businesses in Asia-Pacific are planning to move risk management activities to front line units over the next three years, rather than keep responsibility with dedicated risk and compliance teams, according to a recent PwC survey.

“In a fast-changing business environment with heightened regulatory requirements, there will be an increasing burden on the second line of defence – such as risk management and compliance teams. This makes it more difficult for them to stay on top of the changing risk and governance landscape,” says Cimi Leung, risk assurance markets leader for PwC China and Hong Kong. “New technology and approaches, such as data analytics tools, have had a strong enabling effect on first line business units – particularly for larger firms. A sales team, for example, can be better equipped with robust business insights to make risk-informed decisions.”

The findings are noted in a recent PwC Survey, the 6th annual Risk in Review report, which shows that 56% of surveyed Asia-Pacific companies plan to move risk management activities to the first line of defence over the next three years, compared to 46% of global respondents.

“Data analytics and other tools mean that front-line people and processes, as well as corporate culture, can be more effectively used to manage risk, rather than primarily relying on specialist back-office functions,” says Jim Woods, global risk assurance leader for PwC. “Companies that can also make use of this first line of defence tend to have a much stronger risk culture and are more confident about their future financial performance. The aim is not to avoid risk, but to manage it.”

The survey understands the first line of defence as culture, people, processes, systems and controls; the second as board level oversight and risk management and compliance functions; the third as internal audit; and the fourth as external third-party and regulatory oversight.

Moreover, 70% of Asia-Pacific respondents agree that moving risk management responsibilities to the first line of defence makes their company better at anticipating and mitigating negative risk events.

“Recent updates to the Corporate Governance code of the Hong Kong Listing Rules will encourage Hong Kong companies to improve their second line of defence,” says Woods. “Apart from lacking a dedicated risk committee, many do not have a formal Enterprise Risk Management framework. Above all, too many see risk management as being a series of negative challenges rather than as a source of potential competitive advantage. The better equipped you are, the more risk you can handle relative to your competitors.”

The PwC survey comprises responses from 1,581 executives across 30 industries, with a contribution of 241 responses from Asia-Pacific.

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