Dimensions of Risk Management Development in the Business Model and Culture of Financial Industry Organizations in Iran

Abstract

The purpose of this research was to survey the dimensions of implementation and development of risk management in financial industry organizations in Iran so as to reveal the level of risk management implementation and its degree of maturity, including the level of risk management culture, risk management governance, and integrity of risk management systems and processes, in the financial industry organizations.This research, which was a survey in terms of its nature and an applied one in terms of purpose, was performed among 173 organizations from all the companies and institutions in the country's financial industry. A questionnaire was used to collect the required data and information. The results showed that the risk management culture in the country's financial industry organizations was at a slightly lower than average level. Risk governance was at a slightly higher than weak level and the integrity of risk management systems and processes was lower than average. This research investigated enterprise risk management and its development among Iran’s financial industry organizations for the first time.IntroductionRisk management has become a major concern in today's dynamic global environment. In the structure of corporate governance, risk management is a vital issue. Therefore, interest in the establishment of Enterprise Risk Management (ERM) has grown a lot in recent years. Since 2007 when the global financial crisis began, risk management has undergone a huge change. In Iran, various organizations and supervisory institutions have gradually paid special attention to the issue of risk management. However, many companies and institutions have not devoted enough respect to risk management and have not implemented the relevant standards to an acceptable extent.This research aimed to fully explore the dimensions of risk management implementation and development in various financial organizations by answering the following questions in order to reveal the implementation level of risk management and its degree of maturity among those organizations.To what extent the risk management culture is developed among financial industry organizations in Iran?What is the state of risk governance among the companies and institutions of the Iran`s financial industry?How is the integration of risk management systems and processes in the companies and institutions of the Iran`s financial industry? Method and Data.The research data were collected with a qualitative approach by using a questionnaire. The sampling frame and the number of samples for this study were determined based on the classification of the supervisory body of each member in the research population.In this regard, 250 out of 465 organizations, including insurance companies, state-owned banks, private banks, leasing companies, investment banks, portfolio management companies, investment companies, brokerages, holding companies, investment consulting companies, and rating agencies, were randomly selected and the research questionnaire was distributed among them. Out of 250 questionnaires, 215 questionnaires were completed and returned, while 42 questionnaires were unusable. Finally, 173 questionnaires were used for data analysis. FindingsRegarding the answer to the first main question and in terms of the development of risk management culture in the organizations of the country's financial industry, the state of risk culture was at a slightly lower than average level. In response to the second main question, the state of risk governance in the financial industry companies and institutions was at a slightly higher than weak level. In response to the third main question, the integration of risk management systems and processes in the companies and institutions of the country's financial industry was lower than the average. Conclusion and discussion The results of the analyses showed that the risk culture in the organizations of the country's financial industry was at a slightly lower than average level. Also, risk governance was at a higher than weak level and the integrity of the risk management systems and processes in the organizations of the financial industry was lower than the average. In this study, for the country’s organizations of the financial industry, the average abilities to manage financial and non-financial risks were estimated at 16 and 18%, respectively.In general, one of the important reasons for the low level of risk management implementation and lack of institutionalization of risk management culture in the financial institutions was the lack of serious attention to generalization of the importance and position of risk management to preventing future possible crises in financial institutions by the supervisory institutions. The senior managers and board directors` understanding of risk management and the benefits of its implementation in the relevant institutions, low level of risk management knowledge, and lack of experts for risk management implementation, as well as the showcase of risk management to gain satisfaction and minimum approval of the supervisory institutions and their relevant regulations were among the other reasons.

Keywords

• risk management
• risk culture
• risk governance
• integration of risk management systems and processes
• financial industry of iran