SAS supports governance, risk, compliance in financial services industry

While financial institutions in Africa have for the most part managed to weather the storm of the global financial crisis, there is a need to aggressively step up risk management practices, track regulatory compliance and, in turn, measure and forecast future business viability.

Factors that have until now set banks in Africa apart have been the slower adoption and implementation in some parts of Africa of international standards, liquidity requirements, and the less complicated nature of their products and services in stark opposition to their international counterparts.

That said, some banks are starting to show cracks in their armour, mostly due to exposure to volatile markets and low focus on risk management and corporate governance.

“To continue doing business into the future, banks in Africa are going to have to turn their focus to the three spheres of good business, namely: governance, risk and compliance,” says Edward Sungura, Regional Director of sub-Saharan Africa at SAS Institute. “The world views Africa as the last green patch of economic freedom, and if we are to harness this and capitalise on it we need to start conforming to global best practices within the corporate governance arena.”

Poor corporate governance practices are a major inhibitor to some banks in Africa, followed by the slow adoption of enterprise risk management, and compliance. Transparency and accountability also form a part of this, particularly as a result of institutions not embracing compliance set out by global standards authorities and the individual countries' central banks.

But, not all financial institutions are oblivious to the need to adopt more aggressive approaches to governance, risk, and compliance. Working with Nigerian banks FCMB and Skye Bank, SAS Institute helps to better define their internal and external risk factors and assists them in managing their risk environment.

The company has also recently embarked on an enterprise risk management implementation at First Bank Nigeria, as well as a host of additional projects helping other Nigerian banks better understand the task of implementing aggressive governance, risk management and compliance strategies. In the future, through the innovative use of SAS' analytics, many of these banks are looking to start forecasting and proactively managing risk.

“Organisations, and banks especially, need to deploy business processes and systems that are able to identify and assess the gaps in the organisational risk management. Once this has been determined, then plans of action can be put in place to better address risk, whether it be credit risk, operational risk, market risk, fraud or even the risk of failure to meet with regulatory or international compliance requirements,” states Andre Zitzke, Head of the Risk Practice at SAS.

According to Zitzke, risk awareness, measurement and management needs to be addressed at an enterprise level, it needs to be pervasive throughout an organisation, and it needs to be built into every level of the business process. There should be no aspect of a financial institution's business that does not pass through the enterprise risk management process, be it manual or automated, whether it is granting credit to a current or new customer, managing out of order accounts or the creation of a new product or market.

Organisations need to put more effort into the deployment of their risk management framework, and they need to understand the governance and compliance demands they are faced with from a local and global perspective. The next step is deciding how to address these, whether it is through the innovative use of technology and analytics, or through the streamlining of business processes.

“If there is one lesson that needs to be taken from the global economic crisis, it is that you ignore governance, risk and compliance at your own peril. These aspects can also no longer be viewed as a long-term project; they need to happen now to ensure future viability. The direction business needs to take is to better monitor trends and effect change at short notice while taking active steps towards prudent risk management. Banks cannot any longer only focus on only one of the pillars of the Basel accord, but on all the pillars, and will have to diversify to include compliance and corporate governance,” says Colin Hill, from the SAS Risk Practice.

SAS has seen a greater demand from banks and financial institutions across the African continent for its enterprise risk management solutions, particularly in response to the need to adopt best global best practices such as BASEL II, Solvency II and GRC. There is an awakening that is showing that players in the financial industry mean business, and they want to do business on the global stage, and in order to do that they understand that they need to get their houses in order before they do so.

“As a result of the current global financial crisis, the need to embrace risk best practices within the financial services industry has never been as prevalent. At SAS, we are witnessing a growing need among the more than 200 worldwide financial institutions that are our customers for assistance with their risk needs,” says Riad Gydien, Vice-President MEA at SAS.

“It has been estimated by Chartis Research in its Credit Risk Management Systems 2009 report that the global credit risk management systems market is set to grow to $8.63 billion by 2012, at a steady 7% compound annual rate, clearly indicating that the problems are not going away. It is against this backdrop that the focus for banks needs to move more aggressively towards implementing enterprise-wide GRC methodologies to ensure that risk management is pervasive in their organisations. Only then will they be able to access the information they need to make the decisions regarding the management of their risk framework,” ends Gydien.