Eighty-percent of board members at financial services firms believe they need better tools to evaluate investments, PricewaterhouseCoopers financial services practice found in a recent survey of financial services audit committee members. They believe that by being better equipped, they could reduce the chance of future industry instability.
Sixty-five percent said that corporate boards lack the tools and transparency to properly assess risks and exposure, and 95% said they believe greater clarity is required as to what is and what is not reported on an organizations balance sheet. Eighty-eight percent said that risk management parameters at their financial services firm dont adequately account for their exposure to off-balance sheet entities.
Ninety-six percent said they believe a financial services company with exposure to off-balance sheet investments should disclosure those risks, including the quantity and sensitivity to credit, market and liquidity risks. Sixty-five percent said mark-to-market fair valuation accounting has contributed to todays volatile markets, and another 63% called short selling a viable strategy that is critical to the liquidity and smooth operations of the equity and credit markets.
When asked to describe the financial crisis, 30% said it is a reminder of the need for more disciplined risk taking; 20% said it is a reflection of too much emphasis on short-term investing, reporting and compensation; and 25% said it is a wake-up call of the need for more modern regulations to reflect todays more complex, global and integrated capital markets system.
Although 41% said the greatest challenge to the investment management industry over the next year will be restoring investor confidence and 36% think accessing capital will continue to be very challenging, 13% said they are hopeful that the financial services industry will emerge stronger, with better risk controls, from the current credit crisis.
As to how to achieve that, the four top mentioned tools in order of citation, were: enterprise-wide risk management, systematic risk management across the industry, transparency and financial reporting, and internal margin/collateral controls.