Risk management programs have long been shaped by regulatory
priorities–which ironically makes the financial system more
vulnerable to instability. Industry thus needs to be more proactive
in setting its risk agenda.
In theory, a financial services firm's compliance program
should be an extension of the firm's larger efforts in
mitigating risk and protecting investors. In reality, however, a
firm's risk management function is limited in its resources
like any other corporate function, and therefore must pick its
battles. More often than not, for obvious reasons, risk management
ends up being largely shaped by the compliance requirements set by
regulators.
But just as generals fight the last war, regulators tend to
focus on preventing problems of the past from reoccurring rather
than preemptively mitigating against new and future crises. We can
see this in the themes that have dominated the global regulatory
compliance landscape over the last decade. Risk
