Michael Leibrock, DTCC Chief Systemic Risk Officer
Michael Leibrock, DTCC’s Chief Systemic Risk Officer, sat down with DTCC Connection recently to discuss the results from DTCC’s Q1 2017 Systemic Risk Barometer Survey.
Now that the results of the DTCC’s Q1 2017 Systemic Risk Barometer Survey have been published, what were your overall thoughts on the survey results?
The Q1 2017 Systemic Risk Barometer Survey continued to receive strong interest and participation, on both a firm and individual perspective, from financial services practitioners within North America and across the globe. While the survey results were broadly aligned and consistent with our expectations and focus areas, there were a number of surprises identified. Respondent verbatims provided our team with some additional visibility and insight into the overall rationale driving risk selections, as well as highlighted techniques and capabilities that are being employed to mitigate against these identified risks.
What were the some of the findings from the Systemic Risk Barometer Survey that you found most surprising?
Not surprising, cyber risk was identified as the top overall risk by 34% of respondents and included within the top 5 risks by 71% of respondents. That means, however, that 29% of survey respondents did not consider/rank cyber risk within their top 5 broader risks to the global economy. While I don’t think it’s reasonable to have 100% selection for any given risk, fact that almost 3 in 10 respondents did not prioritize cyber as a top 5 risk is surprising. This could be in part due to cyber fatigue, perceived limitations by respondents in their ability to successfully prevent a cyber attack, or whether cyber risk is now simply part of the new normal and business as usual.
On a global perspective, there was a continued decline in responses for risks related to an Economic Slowdown in Asia – which was ranked as the #2 overall risk in the Q1 2016 survey, and was selected by 51% of respondents within their top 5 risks. Responses for this risk decreased to 24% in Q3 2016 and 16% in Q1 2017 (placing it in the lower tier of risks rated). Respondent verbatims cited a continued expansion of China’s GDP as well as initiatives by China’s governments and financial regulators to reduce excessive leverage and debt utilization. This decline was unexpected given the outsized role Asia (China specifically) has across the global economy.
Lastly, this survey saw respondents increasingly prioritize risks related to governance and control functions, such as Significant Business Continuity Event, Sudden Dislocation in Financial Markets and Interconnectedness Risk, versus previous surveys.
What risks are key focus areas and priorities for your team across the second half of 2017 and beyond?
Cyber Risk remains a key area of focus for our team, DTCC and the financial industry as a whole.
The WannaCry cyber and ransomware attack provided a stark reminder of the increasing sophistication, complexity, and persistence of cyber threats, including how the threats are evolving more rapidly than defense capabilities can respond. The WannaCry attack, which caused global disruptions across a broad range of industries and companies, could have been a much more severe attack had it utilized more sophisticated coding.
Cyber attacks are increasingly being utilized as a geopolitical tool by coordinated hacking groups and governments across North Korea, Russia and China and have the potential for broad and significant disruption. We anticipate the velocity of this trend to continue going forward, particularly as these groups continue to secure additional funding and produce more successful cyber attacks.
Although concerns over elections may have eased, as recent election results in both the Netherlands and France were consistent with market expectations and polling forecasts - geopolitical risks remain a significant focus area for risk managers. Outside of elections, upcoming events including the U.S. debt ceiling and budgeting process, the next round of debt assistance for Greece, and the upcoming National Congress of China’s Communist party are only some of the broader geopolitical events that have the potential to directly impact markets and financial services firms.
Central bank monetary policy is another focus area that our team is monitoring, from both a U.S and global perspective. As President Trump makes appointments to fill the open Fed positions, the leadership and composition within the Fed Board of Governors, as well as how these changes impact the Fed’s monetary policy will reverberate across all areas of the global financial system. The Fed has also announced its intention to start the process of reducing its $4.5 Trillion Balance Sheet. The mechanics and timing behind this plan have yet to be communicated, but our team will be monitoring the broader impact of this selling on the U.S. Treasury Market and U.S. interest rates, any correlation and impact across other asset classes or unintended consequences, as well as what is the appropriate size of the Federal Reserve Balance Sheet.
How will DTCC utilize the results from the Systemic Risk Barometer Survey?
DTCC utilizes these survey results to benchmark our risk management framework and initiatives versus the risks that have been prioritized by our member firms. DTCC incorporates the results of these surveys within its thought leadership and member outreach initiatives to promote transparency, foster collaboration, exchange best practices and risk mitigation strategies on the collective challenges impacting the financial services industry.
What enhancements or changes do you envision making to the Systemic Risk Barometer Survey going forward?
At the conclusion of each survey, our team conducts a detailed post mortem review to ensure the survey continues to evolve and remain a useful tool to identify current and emerging systemic risks, as well as working to identify collaborative solutions. Going forward, we continue to focus on broadening and expanding the geographic distribution and participation of respondents in order to capture a holistic view on the systemic risk landscape across the financial services industry.