Compliance Risks Haunt Financial Institutions in Luxembourg as Global Uncertainty Rises
In today’s turbulent macroeconomic and geopolitical context, financial institutions in Luxembourg are facing a multitude of compliance risks that require vigilant risk management. While traditional market, credit, and liquidity risks are resurging due to higher-for-longer interest rates, asset managers and financial institutions must also contend with novel risks that demand proactive and robust principles-based risk management processes.
The Need for Proactive Risk Management
In its latest report, “From Compliance to Competitive Advantage: Risk and Performance in a Fractured World,” PwC Luxembourg emphasizes the importance of adopting principles-based risk management processes. This approach cannot be reduced to mere box-ticking exercises but rather requires ensuring good governance with open channels of communication throughout the firm.
- Risk managers must proactively identify, assess, and mitigate novel risks surrounding the asset and wealth management industry.
- A whole host of risk assessment methods, such as reverse stress testing, should be adopted and integrated into all operational facets.
The Impact of Technological Developments
Olivier Carré, Deputy Managing Partner, Technology & Transformation Leader at PwC Luxembourg, notes that technological developments are proceeding at breakneck speed. Risk managers must familiarize themselves with how these changes can impact both a portfolio’s value and the firm itself.
- Ever-sophisticated cyber attacks and malware pose significant threats.
- Innovative developments in AI and machine learning require careful consideration.
ESG Risks: A Growing Concern
The report also highlights the importance of ESG (Environmental, Social, and Governance) risks. These can lead to substantial drops in a portfolio’s value at the slightest extreme weather event, reputational harm, and intense regulatory scrutiny.
- Financial institutions must consider ESG factors when making investment decisions.
- A proactive approach to ESG risk management is essential for maintaining a firm’s reputation and competitiveness.
Conclusion
As PwC Luxembourg’s report makes clear, financial institutions in Luxembourg must adapt their risk management strategies to fit the current era. The time has never been more apt for asset managers to emerge as “Risk Pioneers” and seize opportunities amidst uncertainty.
Download the Full Report
To learn more about the importance of proactive risk management in today’s turbulent environment, download PwC Luxembourg’s report: “From Compliance to Competitive Advantage: Risk and Performance in a Fractured World.”