Financial Crime World

Indonesia’s Financial Sector Emphasizes Compliance Risk Management to Ensure Stability and Regulatory Conformity

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A recent study has shed light on the significance of Enterprise Risk Management (ERM) practices in Indonesia’s banking sector, highlighting its impact on firms’ operational and financial performances. The research, conducted by a team of academics from various universities, found that ERM has a positive and significant influence on both financial and operational performance.

Key Findings

  • ERM has a positive and significant effect on firm performance
  • Compliance practices also play a crucial role in enhancing firm performance, with a positive and significant impact on both financial and operational outcomes
  • Information Technology (IT) strategy has a positive and significant effect on firm performance

The study surveyed 250 bank managers in Jabodetabek, Indonesia, and examined the mediating effects between ERM and firm performance. The results revealed that IT strategy partially mediates the relationship between ERM and performance, as do compliance practices. These findings underscore the importance of integrating ERM, IT strategy, and compliance practices in enhancing the performance of banking companies in Indonesia.

Risk Management in the Banking Sector

The recognition of the banking sector’s complexity and vulnerability to diverse risk types, including credit, market, operational, and regulatory risks, underscores the critical role of risk management practices. The study’s findings validate the increasing importance of risk management in Indonesia’s financial landscape, emphasizing the need for banks to adopt effective ERM strategies to ensure stability and conformity with regulatory requirements.

Recommendations

The research suggests that Indonesian banking companies should prioritize ERM, IT strategy, and compliance practices to enhance their operational and financial performances. By doing so, they can:

  • Mitigate risks
  • Improve transparency
  • Maintain public trust in the sector

By embracing these best practices, Indonesian banks can ensure stability and regulatory conformity, ultimately contributing to a healthier and more resilient financial system.