A majority of bankers, insurers and asset managers are not confident that their company's business model is good enough to cope with unexpected levels of financial or economic volatility, according to a survey published today by SunGard.
The research, which was carried out by the Economist Intelligence Unit, found only 39% of those surveyed worldwide believed their company was adequately prepared for volatility. Over one in four (26%) believed their company was unprepared, and a further 34% were 'neutral'. Finance executives at non-financial companies were also included in the survey.
Vulnerability to volatility risk: a global challenge also found that more than half of companies surveyed check their ability to cope with volatility risk just once a year (24%) or every six months (29%). This failure to carry out regular stress tests or scenario analysis leaves companies exposed to fast-moving developments, the report said.
Abhik Sen, managing editor at the Economist Intelligence Unit, said: 'What is most striking about this survey is that despite the obvious need for improvements in risk management in today's challenging economic and business environment, a majority of firms around the world do not seem to be conducting stress tests as frequently as they should be.
'Companies should also be worried that only two in five senior executives surveyed feel confident that the business model of their employers can cope with sharp swings in volatility.'
Significant numbers of respondents believed regulatory reform was increasing the risk of volatility, with 52% of those questioned in North America, 43% in Europe and 42% in Asia-Pacific identifying legislation such as Basel III and Solvency II as factors increasing their volatility risk.
Respondents saw financing, credit and market risks as the other main potential sources of volatility for their company over the next three years.
The survey also found that chief risk officers and chief financial officers have become increasingly responsible for managing volatility at companies since the economic crisis, with chief executives becoming less responsible.
The trend was particularly pronounced in North America, where 36% said their CFO was now responsible for managing volatility risk, compared to just 15% before the crisis.
Jeffrey Wallis, managing partner at SunGard Global Services, said the survey showed that while companies were taking steps to better handle the risk of volatility, many were still vulnerable due inadequate monitoring of their exposure or insufficiently robust business models.
'Overall, our findings suggest that there is still much to learn about the causes of volatility risk and the best methods for controlling it,' he added.
