Regulatory risks, such as the threat of government pressure to reallocate capital, are the number one threat facing companies in a variety of industries, according to a recent KPMG survey of C-Suite executives.
Seventy percent of C-suite executives across all industries said that regulatory changes have caused either substantial or moderate changes in their risk management and reporting processes in the past two years.
The fear of regulators has spread far beyond financial services, where “companies are facing arguably the greatest regulatory challenge in their history,” according to the study. “Healthcare, manufacturing, technology, energy and other industries face many new government rules.”
Still, banks and insurance outfits are in the midst of a “regulatory transformation … across the globe” in terms of the capital requirements they must now adhere to, Carl Groth, a managing director at KPMG’s risk advisory practice for the insurance industry, told CFO.
Bank oversight by the Federal Reserve and insurer regulation by the National Association of Insurance Commissioners — especially the NAIC’s Own Risk and Solvency Assessment (ORSA) requirement — are examples of the threats of increasing regulation such companies face, according to Groth. Such rulemaking has pushed companies toward “reallocating internal resources, getting ready for the new regs.” (The NAIC defines ORSA as “an internal process undertaken by an insurer or insurance group to assess the adequacy of its risk management and current and prospective solvency positions under normal and severe stress scenarios.”)
Within financial services, 59 percent of the respondents to the KPMG survey cited regulatory pressures (especially those related to the Dodd-Frank Act and Basel II) as a top risk; in energy and natural resources, 53 percent did so; in health care “government pressure to contain spending” was mentioned by 50 percent as a top threat. (The percentages don’t add up to 100 percent because the respondents were asked to choose three top risks.)
The Economist Intelligence Unit carried out the survey on behalf of KPMG International in December 2012. It gathered data from 1,092 respondents around the world through a closed-ended online questionnaire. All were C-level executives: 28 percent were chief executive officers or the equivalent and 18 percent were CFOs, the two largest groups. Five percent were chief risk officers. Most of the responses came from North America (25 percent), Europe (25 percent) and Asia-Pacific (23 percent).