Moody's: Risk governance disclosure improving at Canada's financial institutions but varies

Since the financial crisis, a growing number of financial institutions in Canada have been improving disclosure of their risk governance practices, a trend that is likely to continue as new disclosure practices are adopted, says Moody's Investors Service in a new report, "Canadian Financial Institutions: Banks and Insurers Lead the Charge in Risk Governance Disclosures." Although firms have added to their risk governance disclosures in almost every year since the crisis, their practices show wide variation.

Given the importance of risk management in the ratings process, Moody's examined the public disclosures of 28 large Canadian financial institutions to determine the extent to which they had adopted 14 risk governance criteria recommended by the international financial sector standard-setter, the Financial Stability Board, as well as 16 criteria Moody's identifies as leading practices. Moody's notes that many of these firms have adopted at least some of the criteria, but have simply not disclosed them.

"We found that Canada's banks and insurance companies provided the highest level of disclosure with regard to their governance practices, while credit unions, crown financial corporations, crown asset managers, and the provincial pension funds provided less," said Jason Mercer, a Moody's assistant vice president.

Although the study found that disclosure varied widely by type of firm, no firm showed that it met all of the FSB's recommendations.

One particularly salient finding was that most firms (23 out of the 28) disclosed the existence of a chief risk officer, the member of management responsible for overseeing enterprise-wide risk, although only a small percentage disclosed that the CRO reported to both the firm's board of directors and CEO. Prior to 2007, only eight firms disclosed having a chief risk officer.

"We believe that, given continued pressure to do so from both regulators and investors, firms will continue to adopt and disclose stronger risk governance practices," said Moody's Mercer.