Banking & finance sector struggling to find clarity in murky regulatory waters
It seems that forewarned is far from forearmed for Australian organisations, which have ranked uncertainty due to regulatory change as one of their ‘top three’ risk concerns. And for the banking and finance sector, regulatory risk is the number one worry, ranking even higher than risks relating to the economy and brand and image.
“In a year where changing legislation has affected all sectors, it’s not unsurprising that many businesses are concerned that they’re not adequately prepared for change or are unsure about what its effects – intended and otherwise might be,” said Jason Disborough, Managing Director, Global for Aon Risk Solutions. “Certainly in 2013 we’ve seen far greater apprehension about risks associated with regulation than in previous years.”
The risk rankings are drawn from Aon’s 2012/13 Australasian Risk Survey, the findings of which were released last month.
Mr Disborough cited change and uncertainty around the Carbon Tax, the Minerals Resource Rent Tax, Occupational Health and Safety (OHS) Harmonisation legislation as well as major amendments to the Privacy Act as likely to be causing some level of indecision.
However it is the banking and finance sector that’s really expressing concern about regulatory-based risk. In addition to the as-yet unknown effects of the new OHS and Carbon Tax regimes, the sector is likely to be more materially affected by privacy law amendments than many others. At the same time, it is grappling with major changes flowing from the Future of Financial Advice (FoFA) reforms and the advent of the new Stronger Super superannuation regime.
The fact that a potential change of government may see some – or all – of the new legislation either reversed or delayed, serves only to further muddy an already murky legislative landscape.
Given the level of concern, Mr Disborough said it came as a surprise to see that many organisations were not as prepared as they might otherwise be for the upcoming changes. He offered preparedness for the new superannuation regime as one example.
“As well as significantly affecting the industry itself, changes to superannuation touch on every employer and every working Australian,” he said. “However, according to the recent Aon Hewitt Superannuation Pulse Survey released earlier this year, some 58% of businesses had not decided how they would respond to the changes even beyond 1 July 2013 when the first of them came into effect.”
Mr Disborough pointed out that, while it is the ‘unknowns’ that are among the biggest risk triggers, not having effective risk management systems in place exacerbates the situation.
“Not knowing what you intend to do in any given situation is a risk in itself,” he said.
However, companies are not being helped by the global climate of uncertainty.
“There’s something of a Catch 22 at work here,” he said. “The recent weakness in the global economy has caused companies to focus more than ever on minimising operating costs. Using effective risk mitigation and risk transfer techniques can help reduce costs. However uncertainty about the effect of legislation reduces companies’ ability to do this.”
By way of example, he cited changes to OHS legislation.
“Although the harmonised approach has been adopted in all states except Western Australia and Victoria, the full implications for directors, officers and operations in regard to a range of issues, including penalties and fines, are still unknown. It’s the unknowns that are key concerns for organisations trying to plan, resource and put systems to support compliance in place.”
Mr Disborough concluded by saying that while businesses are understandably concerned with the uncertainties, they can have more control than they may believe – if they take the right action. And, on a positive note, many companies are.
“We were heartened to see that most organisations continue to increase their investment in risk management and mitigation. There is a proven correlation between advanced risk maturity and the ability to add shareholder value, and companies need to understand this, especially in this climate” he said.
“Preparedness is key,” he said. “In fact it is the only way to face uncertainty head on.”