By working within rather than against regulatory frameworks and managing risks well, companies can gain competitive advantages, says Dr Habib Al Mulla, Chairman, Dubai Financial Services Authority (DFSA).
Financial institutions should clearly articulate their risk strategies, understand the risks they are taking, and build an effective risk-management organisation that helps foster a responsible risk culture. Organisations need to focus on both qualitative and quantitative approaches to risk management – credit risk, liquidity risk and market risk are just as important as reputation risk. The DFSA, according to Dr Habib, is committed to being a risk-based regulator and bases its risk management strategy on the Basel 2 Accord.
“To do this, we will rely on the risk management community to guide us in producing a good product that can be used by all within the regulated community,” said Dr Habib at the Risk World Middle East 2005 conference in Dubai. “It is the responsibility of the regulator and regional risk managers to ensure the vitality of the financial system and we look forward to feedback from the industry. I welcome you to join us in creating something that Dubai in particular and the UAE and the GCC more widely can be proud of as a world leading financial centre.”
Many financial services institutions still fail to think proactively about unseen and emerging risks. Change in risk management priorities is often the result of pressure from regulators and ratings agencies and seldom from self-assessment. Nearly 72 per cent of the respondents of a recent study of more than 130 senior executives in financial services institutions, carried out by the Economist Intelligence Unit, said that regulatory pressures were either an extremely significant or a major driver for changes in the priority of their organisation’s risk management over the past two years.
“A culture of risk awareness has yet to emerge, only few financial institutions require major decisions to be ratified by its risk management committee. Too often a firm’s head of risk is not at the same table as the chief executive officer or other executive directors when important decisions are being made. A financial institution needs to inculcate an appreciation of risk that goes beyond the risk management department and permeates the whole organisation, “ added Dr Habib.
