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Luxembourg’s Financial Institutions Urged to Adapt Risk Management Strategies Amid Turbulent Times
As the global economy grapples with the challenges of higher-for-Longer interest rates, financial institutions in Luxembourg are being warned that traditional risks such as market, credit and liquidity risks are resurging, accompanied by a host of novel risks including technology-, sustainability- and ESG-related, geopolitical and new operational risks.
PwC Luxembourg Report Highlights Importance of Adaptation
According to a new report from PwC Luxembourg, titled “From Compliance to Competitive Advantage: Risk and Performance in a Fractured World”, financial institutions in the country must adapt their risk management strategies to navigate these complex and interconnected challenges. The report highlights that despite robust regulatory reforms since the global financial crisis, the world has still not been shielded from another similar meltdown.
Key Findings and Recommendations
- Traditional risks such as market, credit and liquidity risks are resurging
- Novel risks surrounding geopolitics, ESG and technological changes pose significant threats to bottom lines and asset valuations
- Risk management must go beyond mere compliance and be integrated into all operational facets of financial institutions
- Stress testing and reverse stress testing are essential tools in risk management
- Financial institutions need to update their risk profiles, thoroughly examine and revamp their risk management processes and frameworks
Quotes from PwC Luxembourg Experts
Benjamin Gauthier, Partner, Regulatory, Risk and Compliance Leader at PwC Luxembourg
“The current turbulent macroeconomic and geopolitical context should be seen as an opportunity for asset managers to update their risk profiles, thoroughly examine and revamp their risk management processes and frameworks, adopt a whole host of risk assessment methods, and integrate risk management into all operational facets.”
Olivier Carré, Deputy Managing Partner, Technology & Transformation Leader at PwC Luxembourg
“Technological developments are proceeding at breakneck speed, from ever-sophisticated cyber attacks and malware to innovative developments in the AI sphere. Risk managers need to familiarize themselves with how such changes can impact both a portfolio’s value and the firm itself, and ensure that the firm is digitally resilient and well-positioned to make the best of the opportunities presented by technology without exposing the firm to extensive risks.”
ESG Risks and Importance of Digital Resilience
The report also emphasizes the importance of ESG risks, which can lead to substantial drops in a portfolio’s value at the slightest extreme weather event, as well as reputational harm and regulatory scrutiny. Furthermore, financial institutions need to ensure digital resilience to mitigate risks associated with technological advancements.
Conclusion
As the financial industry navigates these complex challenges, PwC Luxembourg urges financial institutions to adapt their risk management strategies to fit the current era. The time has never been more apt for firms to emerge as “Risk Pioneers” and seize the opportunities presented by technological advancements while mitigating risks.
Full Report Available
The full report is available for download: “From Compliance to Competitive Advantage: Risk and Performance in a Fractured World”.