Regulatory Uncertainty Tops Canadian CROs' Concerns: Chief Risk Officers from Canada's Five Largest Banks Met for a Panel Discussion Sponsored by RMA's Toronto Chapter
McLaughlin, Kevin, The RMA Journal
Like their counterparts in the United States and other nations, Canada's chief risk officers are worried about regulatory changes and the impact an increased regulatory burden will have on their institutions' risk profiles.
"There's so much uncertainty about what the regulatory environment is going to be like over the next few years, what the changes will be, how quickly they'll be implemented, exactly what they are," said Morten Friis of Royal Bank of Canada (RBC). "Managing regulatory risk and regulatory uncertainty is the most dominant theme for us."
Friis was among five CROs from Canada's largest banks who spoke recently at the Chief Risk Officers 2011 Panel Luncheon in Toronto. Other CRO panelists were Mark Chauvin of TD Bank Group, Surjit Rajpal of BMO Financial Group, Tom Woods of CIBC, and Robert Pitfield of Scotiabank. Jane Kinney, vice chair of Deloitte LLP, moderated the discussion.
Woods of CIBC praised Canadian regulators, while expressing concern about the international regulatory environment.
"OSFI [Office of the Superintendent of Financial Institutions, Canada's banking regulator] has done a tremendous job with the banks here, trying to give us some guidance as to where the world is going and trying to ensure that there's a level playing field," Woods said. "But there's a long list of things that have to get sorted out internationally, not the least of which is the amount of capital the banks will have to hold."
Rajpal of BMO expressed concern about likely delays in finalizing regulation because of the different agendas of various jurisdictions.
"I'm most concerned about consistency, about the time frame that will be used to adopt all these changes," he said. "I'm not optimistic about how quickly it will get resolved with consistency, because different geographies have different priorities and vested interests."
Pitfield of Scotiabank called for commonsense regulation, adding that Canadian regulators might offer a good example for the rest of the globe.
"I think they're showing a lot of international leadership in a number of very important ways," he said of Canadian banking authorities. "From our bank's perspective, the debate among regulators, different banks, different geographies, is so intense that it's difficult to reach any kind of commonality. Anybody who can introduce reasonability, common sense, a middle ground, and help to bring parties together is a very valuable player. Hopefully, we can play a role in that."
Asked about the cost and difficulty of meeting new regulatory demands, Chauvin of TD spoke of the importance of incorporating changes into the fabric of the bank's procedures.
"You have to approach it from a perspective of what makes sense for your organization," he said. "How can we implement this in a manner that adds value to the organization? How can we incorporate this so that it's sustainable? How can this make us better?"
Friis spoke of the inevitability of increased regulation and even its appropriateness in many instances.
"A large number of the regulatory changes we're going through are appropriate and helpful, but the execution of them creates risks," he said. "We have to figure out how to minimize the risk and how to live with it. Complaining about it isn't all that productive, but we have a large opportunity to influence the spirit and detail of the regulations by working with the regulators."
Risk Culture and Risk Appetite
An effective risk culture starts at the top, said Friis. "The involvement of the CEO and the executive committee members in setting the right tone in their respective businesses for the balance of risk and return, the awareness of risk, and the ownership of risk is critical," he emphasized. "Board engagement and involvement in these issues has been very helpful in sending the right messages and setting the right tone in the organization. …