**3. Method**

A questionnaire adopted from a previous study by Bezzina et al. [8] to determine the risk management practices by Maltese financial firms, was used to extend this study to other Euro-Mediterranean countries. This questionnaire was administered to persons working in, or with a connection to the field of risk management within the financial services industry. Participants for the questionnaire were recruited with the help of one of the authors who is an active participant in European risk management associations. The survey was administered using an online questionnaire which was opened in January 2017 and closed in November 2017. In the introduction page we outlined our aims and objectives, while in the next four sections we posed closedended statements, which related to four main themes: (i) strategies and mechanisms adopted in risk management; (ii) the perceived purpose, scope and benefits of risk management; (iii) risk management and competitive advantage; and (iv) CSR influences on the corporate risk management strategies. The participants were asked to choose from a five-point Likert scale mainly ranging from 'strongly disagree' (coded as '1') to 'strongly agree' (coded as '5'), and some others ranging from 'very unimportant' (coded as '1') to 'very important' (coded as '5'). The final section (Section 5) was dedicated to the collection of the demographic data about the participant and their organisations. This data was collected in the form of labels or a scale and presented in aggregate, so as not to enable identification of the organisation or the participant. The responses (1635 respondents) were then subjected to statistical analysis using SPSS. When summarising the data, the median and interquartile range (lower quartile to upper quartile) were used for the ordinal scales while the mean and standard deviation were used with the interval/ratio scales. To test for differences in mean ranks, the Friedman test (a non-parametric alternative to one-way ANOVA) was used. Participants were guaranteed that their identity and that of the firm they are representing will be maintained anonymous.

### **4. Research questions**

As noted above, being an extension of a previous study by Bezzina et al. [8], and since we adopted the same questionnaire, we also maintained the same research questions and the new responses were used to investigate and compare to the findings in that study.

#### **4.1 RQ1**

What are the risk management strategies and mechanisms adopted by financial services firms within countries with a Euro-Mediterranean connection in order to manage their risks, strengthen their opportunities and retain financial stability?

#### **4.2 RQ2**

Do the financial services firms in countries with a Euro-Mediterranean connection perceive risk management as just an authority imposed obligatory requirement or do they see it as critical for the achievement of 'principled performance'?

#### **4.3 RQ3**

Do risk management abilities offer a competitive advantage to financial services firms in countries with a Euro-Mediterranean connection?

**85**

**Table 1.** *Summary statistics.*

*Risk Management Practices Adopted by European Financial Firms with a Mediterranean…*

The respondents reported (on average), that they strongly agree their institution has a strategic risk management plan in place (Md = 5, IQR = 4–5). Furthermore, they agreed (Md = 4), that they have systems in place to strengthen the risk man-

Furthermore, we asked the respondents to rate their level of agreement with seven statements related to the scope of their institution's strategic risk management plan is. **Table 2** shows that there were significant differences in mean ranks based on the Friedman test, although they strongly agreed (Md = 5) or agreed (Md = 4)

We then delved into the quality requirements of risk management, the procedures/processes/policies of risk management, and the risk culture adopted by the financial services institutions. Details of the items used and a summary of statistical output are provided in **Table 3**. The responses exhibit empirical evidence of a

Finally, we wanted to know how important each of 12 established frameworks were for the institutions when implementing risk management. **Table 4** shows that four frameworks were overall rated as 'important', (Basel Accords, COSO 2, IAS and Interest Rate Risk Management), and the remaining eight as 'neither important nor

The respondents reported (on average) that risk management practices play a vital role in their institutions (M = 4.00; SD = 0.51) and have a positive perception of risk management practices in achieving principled performance (M = 4.10, 0.64). **Table 5** provides a summary of the responses and statistical output pertain-

Furthermore, they agreed (Md = 4) that they give sufficient attention to all the risks that we outlined when designing strategies and objectives, bar 'health and safety' (Md = 3). **Table 6** exhibits the 14 risks in order of decreasing attention as

In this research question, we wanted to better understand the capabilities of risk management practices in achieving competitive advantage. We first sought to determine the institutions' intention behind the risk management strategy for the

**The strategic risk management plan Median IQR** Is clearly communicated and understood 4 3–5 Is a contribution of all team members 4 3–5 Is a responsibility of top management 4 4–5 Is in sync with individual risk management plans 4 4–5

strong risk management within the institutions investigated.

ing to the individual items that make up these two constructs.

*N = 1635; scales are ordinal and range from strongly disagree ('1') to strongly agree ('5').*

*DOI: http://dx.doi.org/10.5772/intechopen.80640*

agement process (see **Table 1**).

with all the statements.

unimportant'.

rated by the respondents.

financial services (see **Table 7**).

**5.2 RQ2**

**5.3 RQ3**

**5. Results**

**5.1 RQ1**

*Risk Management Practices Adopted by European Financial Firms with a Mediterranean… DOI: http://dx.doi.org/10.5772/intechopen.80640*

## **5. Results**

### **5.1 RQ1**

*Perspectives on Risk, Assessment and Management Paradigms*

firm they are representing will be maintained anonymous.

**4. Research questions**

ings in that study.

**4.1 RQ1**

**4.2 RQ2**

**4.3 RQ3**

A questionnaire adopted from a previous study by Bezzina et al. [8] to determine the risk management practices by Maltese financial firms, was used to extend this study to other Euro-Mediterranean countries. This questionnaire was administered to persons working in, or with a connection to the field of risk management within the financial services industry. Participants for the questionnaire were recruited with the help of one of the authors who is an active participant in European risk management associations. The survey was administered using an online questionnaire which was opened in January 2017 and closed in November 2017. In the introduction page we outlined our aims and objectives, while in the next four sections we posed closedended statements, which related to four main themes: (i) strategies and mechanisms adopted in risk management; (ii) the perceived purpose, scope and benefits of risk management; (iii) risk management and competitive advantage; and (iv) CSR influences on the corporate risk management strategies. The participants were asked to choose from a five-point Likert scale mainly ranging from 'strongly disagree' (coded as '1') to 'strongly agree' (coded as '5'), and some others ranging from 'very unimportant' (coded as '1') to 'very important' (coded as '5'). The final section (Section 5) was dedicated to the collection of the demographic data about the participant and their organisations. This data was collected in the form of labels or a scale and presented in aggregate, so as not to enable identification of the organisation or the participant. The responses (1635 respondents) were then subjected to statistical analysis using SPSS. When summarising the data, the median and interquartile range (lower quartile to upper quartile) were used for the ordinal scales while the mean and standard deviation were used with the interval/ratio scales. To test for differences in mean ranks, the Friedman test (a non-parametric alternative to one-way ANOVA) was used. Participants were guaranteed that their identity and that of the

As noted above, being an extension of a previous study by Bezzina et al. [8], and since we adopted the same questionnaire, we also maintained the same research questions and the new responses were used to investigate and compare to the find-

What are the risk management strategies and mechanisms adopted by financial services firms within countries with a Euro-Mediterranean connection in order to manage their risks, strengthen their opportunities and retain financial stability?

Do the financial services firms in countries with a Euro-Mediterranean connection perceive risk management as just an authority imposed obligatory requirement

Do risk management abilities offer a competitive advantage to financial services

or do they see it as critical for the achievement of 'principled performance'?

firms in countries with a Euro-Mediterranean connection?

**3. Method**

**84**

The respondents reported (on average), that they strongly agree their institution has a strategic risk management plan in place (Md = 5, IQR = 4–5). Furthermore, they agreed (Md = 4), that they have systems in place to strengthen the risk management process (see **Table 1**).

Furthermore, we asked the respondents to rate their level of agreement with seven statements related to the scope of their institution's strategic risk management plan is. **Table 2** shows that there were significant differences in mean ranks based on the Friedman test, although they strongly agreed (Md = 5) or agreed (Md = 4) with all the statements.

We then delved into the quality requirements of risk management, the procedures/processes/policies of risk management, and the risk culture adopted by the financial services institutions. Details of the items used and a summary of statistical output are provided in **Table 3**. The responses exhibit empirical evidence of a strong risk management within the institutions investigated.

Finally, we wanted to know how important each of 12 established frameworks were for the institutions when implementing risk management. **Table 4** shows that four frameworks were overall rated as 'important', (Basel Accords, COSO 2, IAS and Interest Rate Risk Management), and the remaining eight as 'neither important nor unimportant'.

### **5.2 RQ2**

The respondents reported (on average) that risk management practices play a vital role in their institutions (M = 4.00; SD = 0.51) and have a positive perception of risk management practices in achieving principled performance (M = 4.10, 0.64). **Table 5** provides a summary of the responses and statistical output pertaining to the individual items that make up these two constructs.

Furthermore, they agreed (Md = 4) that they give sufficient attention to all the risks that we outlined when designing strategies and objectives, bar 'health and safety' (Md = 3). **Table 6** exhibits the 14 risks in order of decreasing attention as rated by the respondents.

#### **5.3 RQ3**

In this research question, we wanted to better understand the capabilities of risk management practices in achieving competitive advantage. We first sought to determine the institutions' intention behind the risk management strategy for the financial services (see **Table 7**).


**Table 1.** *Summary statistics.*


*Friedman test: χ 2 (6) = 1777.37, p* ≤ *0.001; N = 1635; scales are ordinal and range from strongly disagree ('1') to strongly agree ('5').*

#### **Table 2.**

*Summary statistics and Friedman test output.*


*N = 1635; scales are ordinal and range from strongly disagree ('1') to strongly agree ('5'); Friedman tests: χ 2 (3) = 391.16, p* ≤ *0.001.*

*a χ 2 (6) = 749.48, p* ≤ *0.001.*

*b χ 2 (5) = 749.48, p* ≤ *0.001.*

*c χ2(4) = 1028.64, p* ≤ *0.001. \* Reverse coded.*

#### **Table 3.**

*Risk management quality requirements, risk management procedures/process/policies and risk culture: summary statistics and Friedman test output.*

**87**

*χ 2*

**Table 4.**

*(11) = 5906.88, p* ≤ *0.001.*

achieve the desired outcomes

practices benefit realisation plans\*

*Perceived purpose of risk management practices*

(Md = 3).

value\*

**Table 5.**

*Risk Management Practices Adopted by European Financial Firms with a Mediterranean…*

Basel Accords 4 4–5 9.14 COSO 2 4 3–5 8.72 International Accounting Standards (IAS) 4 3–4 7.91 ISO 31000 4 3–5 7.79 Interest Rate Risk Management (e.g., duration or gap analysis) 4 3–4 6.70 FERMA 3 3–4 6.53 Cobit 3 3–4 6.47 National Risk Management Standards (NRMS) 3 3–3 5.55 Value at Risk (VAR) 3 3–4 5.46 Prince 2 3 3–4 5.37 AIRMIC 3 3–3 4.20 ITIL 3 3–3 4.17 *N = 1635; scales are ordinal and range from very unimportant ('1') to very important ('5'); Friedman test:* 

**Median IQR** 

**(range)**

**Mean rank**

**Median IQR**

4 4–5

4 4–5

4 3–5

*Reverse coded.*

We then wanted to examine the extent to which continuous risk impact assessments strengthen the competitive advantage in each of 8 factors. **Table 8** shows that the respondents agreed (Md = 4) with all the factors bar political and legal factors

Clearly defines its goals and values 4 4–4 Outlines how these goals are achieved 4 4–4 Identifies and demonstrates how risks and vulnerabilities would be addressed 4 4–4 Allows for transparency with stakeholders 4 3–4

Critical factor in achieving principled performance 4 4–5 Vital to the performance and success of our institution's objectives 4 3–5 No link between principled performance and RM practices\* 4 4–5

Furthermore, we examined the benefits risk management capabilities provide to institutions. These respondents agreed (Md = 4) that risk management infuses a

*DOI: http://dx.doi.org/10.5772/intechopen.80640*

**implementing risk management**

**Our institution makes use of the following frameworks when** 

*Risk management frameworks: summary statistics and Friedman test output.*

*Risk management practices play a vital role in ensuring that our institution*

Implements an effective mechanism for change, enabling continuous improvement to

Principled performance does not form part of our institution's risk management

Puts a strain on resource effort for compliance's purposes without providing added

*N = 1635; scales are ordinal and range from strongly disagree ('1') to strongly agree ('5').\**

*Role and perceived purpose of risk management practices: summary statistics.*

*Risk Management Practices Adopted by European Financial Firms with a Mediterranean… DOI: http://dx.doi.org/10.5772/intechopen.80640*


*N = 1635; scales are ordinal and range from very unimportant ('1') to very important ('5'); Friedman test: χ 2 (11) = 5906.88, p* ≤ *0.001.*

#### **Table 4.**

*Perspectives on Risk, Assessment and Management Paradigms*

Is to provide a framework for the risk management process of

Is to provide the appropriate setup to enable risk assessments in

Is to allow for innovation to maximise opportunities and cost

Is to provide a framework with roles and responsibilities to enable

Is to record declared aims and objectives and ensure a systematic

Is to provide a defined structure to sustain business growth and continued profitability within objectives, appetite and tolerance.

identification, monitoring, control and decision

terms of costs and benefits of identified risks

The risk manager is an active member of the risk management

The risk manager makes use of bottom up methodologies in

developing the strategic risk management plan

The risk management committee members communicate the risk

**Statement Median IQR Mean rank**

*(6) = 1777.37, p* ≤ *0.001; N = 1635; scales are ordinal and range from strongly disagree ('1') to* 

**The scope of the strategic risk management plan Median IQR Mean rank**

Is to help maintain stability in financials 4 4–5 3.94

The risk management committee members are Knowledgeable 4 4–4 2.37

Risk reporting and information systems 5 4–5 3.67 Enterprise risk management practices 5 4–5 3.64 Ongoing improvements in risk management practices 5 4–5 3.62 Risk measurement and monitoring in non-financial terms 5 4–5 3.59 Risk measurement and monitoring practices in financial terms 5 4–5 3.47 Identification and quantification of risks and controls 4 4–5 3.01

Top down approach and bottom up approach 5 4–5 3.53 On a global corporate level only (strategic, financial and operational) 4 4–5 3.43 Risks are managed at group level or are silo based\* 4 3–5 2.92 Only for certain business units/areas\* 4 2–5 2.56 Only for certain categories of risks\* 4 2–5 2.56

*Which of the following initiatives are embedded within the firm's risk management strategy?*<sup>b</sup>

*To what extent does your institution map its risks (identification, description and prioritisation)?*<sup>c</sup>

*N = 1635; scales are ordinal and range from strongly disagree ('1') to strongly agree ('5'); Friedman tests:* 

*Risk management quality requirements, risk management procedures/process/policies and risk culture:* 

4 4–5 2.76

5 4–5 4.76

5 4–5 4.73

4 4–5 3.68

4 4–5 3.66

4 4–5 3.62

4 4–5 3.60

4 4–4 2.52

4 4–4 2.36

**86**

*χ 2*

*a χ 2*

*b χ 2*

*c*

*\**

**Table 3.**

*(3) = 391.16, p* ≤ *0.001.*

*(6) = 749.48, p* ≤ *0.001.*

*(5) = 749.48, p* ≤ *0.001.*

*χ2(4) = 1028.64, p* ≤ *0.001.*

*summary statistics and Friedman test output.*

*Reverse coded.*

*In our institution…*<sup>a</sup>

appetite and tolerance of the firm

committee

reduction

*Friedman test: χ*

**Table 2.**

*strongly agree ('5').*

better risk identification

*2*

identification of risks relating to each

*Summary statistics and Friedman test output.*

*Risk management frameworks: summary statistics and Friedman test output.*


#### **Table 5.**

*Role and perceived purpose of risk management practices: summary statistics.*

We then wanted to examine the extent to which continuous risk impact assessments strengthen the competitive advantage in each of 8 factors. **Table 8** shows that the respondents agreed (Md = 4) with all the factors bar political and legal factors (Md = 3).

Furthermore, we examined the benefits risk management capabilities provide to institutions. These respondents agreed (Md = 4) that risk management infuses a


#### **Table 6.**

*Risks when designing strategies and objectives: summary statistics and Friedman test output.*


#### **Table 7.**

*Intention behind the risk management strategy: summary statistics and Friedman test output.*

risk culture in the institution (IQR = 3–5), sustains future profitability (IQR = 4–5), provides visibility of economic and financial environment (IQR = 3–5) as well as long term profitable growth (IQR = 3–4) and provides competitive advantage (IQR = 3–5). Furthermore, we asked the respondents to rate their level of agreement with six factors aimed strengthening core risk management functions. The findings are exhibited in **Table 9**.

**89**

**6. Conclusion**

*p* ≤ *0.001.*

**Table 9.**

*Risk Management Practices Adopted by European Financial Firms with a Mediterranean…*

*N = 1635; scales are ordinal and range from strongly disagree ('1') to strongly ('5'); Friedman test: χ*

*Factors strengthening competitive advantage: summary statistics and Friedman test output.*

**In order to strengthen the core risk management functions,**

to decision makers on credit and sources of finance

for the coming years to reflect potential market scenarios

Strengthen the internal information markets to make information available

Continuously strengthen internal capital efficiency and capital planning

Refine the risk management tools to optimise usage of liquidity and

Financial capabilities 4 4–5 5.79 Economic factors 4 4–5 5.64 Marketing capabilities 4 3–5 4.40 Competitive factors 4 3–5 4.38 Cultural and societal factors 4 3–5 4.18 Technology 4 3–4 3.97 Human resource capabilities 4 3–5 3.74 Political and legal factors 3 3–4 3.90

Carry out continuous risk analysis of its credit portfolio 4 3–5 3.74 Adjust credit policies and revise mandates and incentive systems 4 3–5 3.73

Carry out strategic re-adjustment of liquidity intensive businesses 4 3–5 3.26

**Median IQR Mean** 

*2*

**Median IQR Mean** 

4 3–5 3.65

4 3–5 3.45

4 3–4 3.17

*2*

*(5) = 483.38,* 

*(7) = 2095.78,* 

**rank**

**rank**

Our findings evidence that although authors such as Youngs [9], show strong scepticisms on the works and challenges of the EMP and the EU legislation; mainly to ensure that members operate on the same level playing field; within risk management in financial services of firms with a Euro-Mediterranean connection, this objective has been achieved. In fact, results show that similarly to the findings by Bezzina et al. [8] on Maltese financial services firms, personnel working or are involved in/with risk management of financial services firms with their head offices operating from Cyprus, France, Italy, Spain, Croatia, Greece, and Slovenia report that they have a strategic risk management plan in place with systems to enable the strengthening of their risk management processes to reach clearly identified objectives. They note various reasons that have helped to ensure this, with the strongest reasons being that of abiding to legal, regulatory and compliance requirements and the need to have a framework for systematic risk identification, mitigation, management, monitoring and control.

*N = 1635; scales are ordinal and range from strongly disagree ('1') to strongly agree ('5'); Friedman test: χ*

*Strengthening core risk management functions: summary statistics and Friedman test output.*

*DOI: http://dx.doi.org/10.5772/intechopen.80640*

**competitive advantage in:**

**our executives seek to…**

improve transparency

*p* ≤ *0.001.*

**Table 8.**

**Our institution's risk management strategy requires that continuous risk impact assessments are conducted in order to strengthen the** 

*Risk Management Practices Adopted by European Financial Firms with a Mediterranean… DOI: http://dx.doi.org/10.5772/intechopen.80640*


#### **Table 8.**

*Perspectives on Risk, Assessment and Management Paradigms*

**designing strategies and objectives**

**Our institution gives sufficient attention to the following risks when** 

*N = 1635; scales are ordinal and range from very low ('1') to very high ('5'). Friedman test: χ*

To instil a consistent strong risk culture focussed on optimising understood risk return trade-offs within the defined risk strategy

*Risks when designing strategies and objectives: summary statistics and Friedman test output.*

The risk management strategy was implemented… **Median IQR Mean** 

To abide by legal, regulatory or compliance requirements 5 3–5 6.11 To formally define the institution's risk appetite 5 3–5 5.92 To formalise the governance structure 4 3–5 5.84 For catastrophic events or major crises (reaction to unexpected losses) 4 3–5 5.81 For corporate social responsibility 4 3–5 5.51 Due to pressure from analysts and/or rating agencies 4 3–5 5.32 Due to pressure from the market (e.g., competitors, suppliers, etc.) 4 3–5 5.28

Credit risk 4 4–5 9.41 Financial risk 4 4–5 9.01 Liquidity risk 4 4–5 8.96 Fraud risk 4 4–5 8.52 Operational risk 4 4–5 8.48 Strategic risk 4 3–5 8.23 Market risk 4 4–4 7.73 Reputation risk 4 4–5 7.64 External risk 4 4–5 7.46 Corporate governance risk 4 3–4 6.52 Legal/ethical risk 4 3–4 6.33 Administrative risk 4 3–4 6.00 Information risk 4 3–4 5.75 Health and safety risks 3 3–4 5.28

**Median IQR Mean** 

*2*

*(13) = 3839.11, p* ≤ *0.001.*

4 3–5 5.13

**rank**

**rank**

risk culture in the institution (IQR = 3–5), sustains future profitability (IQR = 4–5), provides visibility of economic and financial environment (IQR = 3–5) as well as long term profitable growth (IQR = 3–4) and provides competitive advantage (IQR = 3–5). Furthermore, we asked the respondents to rate their level of agreement with six factors aimed strengthening core risk management functions. The findings

*Intention behind the risk management strategy: summary statistics and Friedman test output.*

To ensure full transparency across all risks and across the organisation 4 3–5 5.08 For competitive advantage 4 3–5 5.01

*(9) = 1057.85, p* ≤ *0.001; N = 1635; scales are ordinal and range from strongly disagree ('1') to* 

**88**

**Table 6.**

are exhibited in **Table 9**.

*Friedman test: χ*

**Table 7.**

*strongly agree ('5').*

*2*

*Factors strengthening competitive advantage: summary statistics and Friedman test output.*


#### **Table 9.**

*Strengthening core risk management functions: summary statistics and Friedman test output.*

#### **6. Conclusion**

Our findings evidence that although authors such as Youngs [9], show strong scepticisms on the works and challenges of the EMP and the EU legislation; mainly to ensure that members operate on the same level playing field; within risk management in financial services of firms with a Euro-Mediterranean connection, this objective has been achieved. In fact, results show that similarly to the findings by Bezzina et al. [8] on Maltese financial services firms, personnel working or are involved in/with risk management of financial services firms with their head offices operating from Cyprus, France, Italy, Spain, Croatia, Greece, and Slovenia report that they have a strategic risk management plan in place with systems to enable the strengthening of their risk management processes to reach clearly identified objectives. They note various reasons that have helped to ensure this, with the strongest reasons being that of abiding to legal, regulatory and compliance requirements and the need to have a framework for systematic risk identification, mitigation, management, monitoring and control.

Findings, also show that the risk manager in these firms, similar to that of Maltese financial services forms, is highly active and involved, very knowledgeable and uses both top-down and bottom-up approaches to communicate the risk appetite of the company. This is facilitated by the fact that the quality and importance of risk management is embedded within their risk management strategy and seen as part of the firms' growth road map and a way to meet objectives. Moreover, in carrying out and designing their risk management strategy and processes these institutions tend to favour the use of frameworks/recommendations with the most followed being that provided by the Basel Accords. However, although, they give attention to practically all known risks identified, they are neutral on 'health and safety' issues, maybe because this might fall out of the competence of the respondents.

Finally, findings show that risk management practices play a vital role in ensuring that institutions reach their objectives (principled performance), add value and create a competitive advantage. This , with these practices, goals and values, is being clearly recorded and communicated; the roadmap to successfully reaching objectives is transparent and clear, enabling appropriate, identification of risks, growth, profitability, flexibility for improvement and change and quick response to uncertainties.
