Compliance Risks in Financial Institutions in Luxembourg Pose Significant Threats, Report Warns
A New Report by PwC Luxembourg Highlights the Need for Robust Risk Management Strategies
A recent report by PwC Luxembourg has sounded the alarm on compliance risks in financial institutions in the country. The report emphasizes that despite global financial crises and subsequent regulatory reforms, financial institutions in Luxembourg are still exposed to significant risks.
Challenges in the Current Macroeconomic and Geopolitical Context
The current macroeconomic and geopolitical context is particularly challenging, with novel risks such as geopolitics, environmental, social, and governance (ESG) factors, and technological changes posing threats to bottom lines and asset valuations.
- Novel risks include geopolitics, ESG factors, and technological changes
- These risks can lead to substantial drops in a portfolio’s value at the slightest extreme weather event, reputational harm, and regulatory scrutiny
The Importance of Risk Management Strategies
Benjamin Gauthier, Partner, Regulatory, Risk and Compliance Leader at PwC Luxembourg, warns that financial institutions cannot afford to adopt a complacent attitude towards these risks. He emphasizes that asset managers should update their risk profiles, thoroughly examine and revamp their risk management processes and frameworks.
- Risk managers need to proactively ensure principles-based good governance with open channels of communication
- They must also keep a keen eye on novel risks surrounding the industry and consider a range of approaches, including stress testing and reverse stress testing
Technological Resilience and ESG Risks
Olivier Carré, Deputy Managing Partner, Technology & Transformation Leader at PwC Luxembourg, highlights the importance of technological resilience in an operational sense. He also emphasizes the need for firms to be well-positioned to make the best of opportunities presented by technology without exposing themselves to extensive risks.
- Risk managers need to familiarize themselves with how changes can impact both a portfolio’s value and the firm itself
- ESG risks can lead to substantial drops in a portfolio’s value, reputational harm, and regulatory scrutiny
The Need for Adaptation and Innovation
The report concludes that it is time for financial institutions in Luxembourg to adapt their risk management strategies to fit the current era. By embracing challenges as opportunities, firms can emerge as “Risk Pioneers.”
- Financial institutions must adapt their risk management strategies to fit the current era
- By doing so, they can position themselves to take advantage of opportunities and minimize risks
Overall, the report emphasizes that compliance risks in financial institutions in Luxembourg pose significant threats. To navigate these challenges, asset managers must prioritize robust risk management strategies, technological resilience, and ESG awareness.