Compliance and standards not the friend of active risk management–Belgium

Standards such as ISO 31000 were introduced to offer companies a coherent and internationally accepted framework to help them manage their risks more effectively and thus help avoid future crises such as that suffered in 2008. But risk managers around the world who have taken part in this year’s European and Global Risk Frontiers survey agree that rules and regulations can never be the answer alone. This is because they simply are not flexible enough to adapt to specific company and market circumstances. The danger is that many boards discover standards such as ISO 31000, tell the compliance department to make sure the company complies and ticks the right boxes, can say so in the report and accounts, then close the file and move on.hideThis is not active risk management and the Belgian risk managers agreed with their counterparts across Europe and worldwide that compliance and standardisation can easily turn out to be the enemy of truly dynamic, positive and effective risk management. Johan Willaert of Ferma and Agfa-Gevaert said that the level of compliance in companies nowadays actually acts as a barrier to creative thinking and dynamic risk-based decision-making. “To be successful in business you need to be very creative but often you can find out that that creative solution was not actually compliant. You need to strike the right balance,” he said. Gaëtan Lefèvre, President of Belrim and Risk and Insurance Manager at CMI, said this is why the use of standards such as ISO 31000 can be ‘dangerous’. “Problems are not solved and solutions found by certifying them. The tick-box approach does not solve problems but there is a danger that companies can begin to think that way and believe that the risk is covered if they are certified,” he added. Mr Lefèvre believes that the ever-rising mountain of rules and regulations faced by European or US companies, for example, is one of the reasons why they are expanding into emerging markets. Yes, growth opportunities are greater in faster-growing regions such as Africa but, according to Mr Lefèvre, companies also simply do not want to incur the liabilities of doing business in the European Union or United States. The Belrim president believes that this is holding the western economy back compared with eastern Europe, China and wider Southeast Asia and Africa. “In these territories the rules often do not apply. In Africa business is not generally stifled by rules and regulations. I know of an asset management company here in Europe that had 28 people before the credit crisis and was doing well. Following the introduction of all the new rules after the crisis it had to hire three new people to handle all the compliance work. Someone has to pay for this and it arguably brings no added value to the client,” he said. Sabine Desantoine, Insurable Risks Manager with ING Belgium, said that compliance has been a big question for financial institutions for some years now. “For every new business or project the first question that is asked is: ‘Are we compliant or are we at risk?’ All banks are looking at this constantly and it takes up a lot of time and resource,” she said. Mr Willaert said the ever rising complexity and difficulty of building and ensuring a global insurance programme is compliant is a good example of the problem. “The first question you have to ask is whether the coverage is admitted or non-admitted and you have to conclude that if you really want to be 100% compliant you can’t use a global programme,” he said. Mr Willaert said that, in his view, the general trend towards a highly regulated compliance culture in business is reflected in the wider trend towards risk aversion and blame culture in western society as a whole. “Society demands that you cannot take risks alone and stand by the results of that risk-taking. Every time something happens people want a reason and an explanation because we live in a risk-averse society. Against this backdrop it makes it much more difficult to find people who are prepared to take risks,” he said. Chris Staes, Managing Director of HDI-Gerling in Belgium, agreed that the way in which international insurers are regulated does reflect this rise in compliance culture and represents a challenge for all businesses. “It is true that financial institutions, including insurance companies such as ourselves, are highly regulated. You have to comply with the rules and offer certainty. It can be very complicated to be compliant nowadays and it’s a big risk for insurers because if you fail to comply then, in the long term, you can be prevented from acting in a market,” he said. Malou Gossez of AGC Glass Europe pointed out that the rise of risk aversion in society and compliance culture in regulatory circles means that true risk management becomes more important than ever. “As society becomes more risk averse and the rules and compliance grows at the same time, companies are desperately seeking ways to grow. To do this they have to take more risks. Our function as risk managers is to analyse and assess these risks and warn and advise what can happen if these risks are taken. We are here to help companies take risks not avoid them,” she explained.

Compliance and standards not the friend of active risk management–Belgium

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