Most bankers, insurers and asset managers, as well as finance executives at non-financial companies, think they organizations are threatened by exceptional or sudden swings in volatility, according to a global survey conducted by the Economist Intelligence Unit on behalf of SunGard.

Following the 2008 financial crisis, regulators have made understanding and managing volatility risk a top priority, to such an extent that some figures in the industry even fear an over-reaction. The US Federal Reserve and European authorities, for example,  have introduced stress tested large banks to see if they would have sufficient capital in times of severe economic and financial distress, as well as to analyze risk across the financial system.

The survey of 500 executives at financial and non-financial firms found that more than two in five respondents feel their firms are under-investing in risk management tools that could help them cope with volatility.

Over half of respondents said their company conducts stress tests just once a year or every six months at best. Only 17 per cent of respondents say their company proactively takes measures to protect their clients from volatility risk and nearly one in three say they either wait for instruction from their clients, or they do not have any system in place to specifically shield their clients.

Since the onset of the crisis, chief financial officers and chief risk officers have become more accountable for coping with volatility, the report said. “This is particularly true in North America, where over a third of respondents say their CFO is currently accountable for managing volatility at their company,” it said.

 “What is most striking about this survey is that despite the obvious need for improvements in  risk management in today's challenging economic and business environment, a majority of firms around the world do not seem to be conducting stress tests as frequently as they should be. Companies should also be worried that only two in five senior executives surveyed feel confident that the business model of their employers can cope with sharp swings in volatility,” Abhik Sen, managing editor at the EIU, said in the report.  

Jeffrey Wallis, managing partner at SunGard Global Services, said the report showed that firms have become better at handling risks, but added:  “It also appears that many firms remain vulnerable, whether through irregular or non-existent exposure monitoring, inadequate investment or insufficiently robust business models. Overall, our findings suggest that there is still much to learn about the causes of volatility risk and the best methods for controlling it.”