Introduction

In light of the financial crisis it has become prudent for financial services institutions to become more economical and efficient with the resources available. One obvious way of doing this is simply by streamlining the workforce; however, this is not always possible, and only prudent to a certain extent. When resources can no longer be pressed for further productivity, off-shoring and even outsourcing are possibilities that have seriously been considered in recent years.

Key findings

• Overview of off-shoring culture – On the eve of the financial crisis, off-shoring was already prevalent within the industry. In 2007, 6% of the total number of people employed within the industry were working in off-shore centres, with the greatest proportion of these located in India.

• Extent of off-shoring risk management – Neither the Asian bank nor the tier-1 European bank expect to see further risk functions being off-shored over the next 18 months, with the source at the Asian bank confident that no facets of risk would be decentralised at all. Likewise, the representative from the tier-1 European bank feels they have off-shored close to the maximum they feel comfortable. Any increases will be very modest.

• Drivers and considerations – The array of factors is extensive and cannot be considered in isolation. However, all things being considered, the riskiness of any venture must remain the highest priority and risks cannot be compromised to increase cost savings or minimise timescales.

• Locational strategies – Where banks predominantly offshore to will very much be determined by the risk activities they want to relocate. Other determinants of the conditions within a potential off-shore centre will also play a large part in the locational strategy of financial institutions, such as macroeconomic stability, local regulation and labour costs and skill sets.

Conclusion

The risk management function and associated funding has understandably experienced greater attention in the wake of the crisis, as banks have had to comply with greater regulation to safeguard the longevity of the institution and the industry as a whole. However, as banks and regulators become more confident in the long term stability of the market, funding will surely dwindle. Without the means to maximise resources, cutbacks may ensue, raising the potential for risk management to lose its new found authority, which may well see a similar path taken as the one taken preceding the credit crisis.

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Tagged with: 2010, risk management, Risk organization, Risk Research Report