Financial institutions need to be risk aware, not risk averse
Posted, May 11, 2011 @ 00:00
Strasbourg, 11th May 2011 -- Ahead of the publication of new legislative proposals from the European Commission on corporate governance in financial institutions, the European Parliament has backed a report by European Conservatives and Reformists member Ashley Fox MEP that calls for a greater level of risk awareness and management by both supervisors and financial institutions.
The report, adopted by a significant majority in the parliament today, calls for a combination of principle based regulation and the 'comply or explain' approach for corporate governance within the EU. Such an approach would see a combination of codes of best practice which financial institutions would need to comply with or give an acceptable explanation as to why they are not, coupled with specific legislative proposals such as the setting up of mandatory risk committees at board level in every financial institution to effectively manage risk. Such an approach allows for flexibility and proportionality and avoids a restrictive one-size-fits all approach.
Proposals are due from the commission in July.
Mr Fox said:
"The economic crisis showed that there was a lack of risk awareness and appropriate risk management in a number of financial institutions and supervisory bodies.
"Because of our diverse financial sector in the EU we need a proportional framework for monitoring risk which should be flexible enough to give the industry the freedom it requires to manage risk whilst not restricting liquidity and reducing competitiveness.
"Risk is intrinsic to our financial system and the freedom to take risk is necessary to enable our institutions deliver growth for Europe. However, financial institutions that pose a systemic risk and which could in future look to the taxpayer need to modify their risk management procedures."