Canadian businesses worried by regulation and compliance: Ernst & Young

Despite relative strength, Canada is not immune from new and recurring threats

(Toronto – 5 August 2010) Regulation and compliance regained the number one spot on Ernst & Young’s top 10 list of global business risks this year. The report reveals that Canadian and global organizations still face a variety of new and recurring threats across all sectors as the economy exits recession.

“Managing risk has become a necessary component to achieving results and avoiding putting the business into jeopardy. Right now, Canadian executives’ greatest concerns surround regulation and compliance,” says Anne-Marie Hubert, Leader of Ernst & Young’s national Advisory practice. “Proposed global changes could result in over-regulation and greater protectionism, preventing businesses from effectively operating across borders and stalling the decision-making process.”

Ernst & Young asked leading industry executives to identify and rank the top business risks for their respective sector within the next 12 months:

1. Regulation and compliance (2 in 2009)
2. Access to credit (1)
3. Slow recovery or double-dip recession (deepening recession was also 3 last year)
4. Managing talent (7)
5. Emerging markets (12)
6. Cost-cutting (6)
7. Non-traditional entrants (5)
8. Radical greening (4)
9. Social acceptance risk and corporate social responsibility (new to list in 2010)
10. Executing alliances and transactions (8)

The risk of encroaching regulation in the financial services, oil and gas, power and utilities, and telecom sectors is still growing and remains high on the list. Access to credit is still high on the list of risks dropping only one spot to number two in 2010. According to the survey, respondents worry about the potential impact of skyrocketing government debt, unsettled markets and the possibility of a second credit crunch. The report mentions specifically those companies holding asset-backed securities and loans coming up for refinancing in the real estate and power and utilities sectors.

“While Canada’s economy and banking sector are considered relatively strong, we must consider the fact that this risk has an impact on the cost of credit globally and may be with us for the long term,” says Hubert. “Large budget deficits are almost certain to lead to higher interest rates over time.”

Recruiting and managing talent is a significant climber up the risk ladder this year, as is dealing with emerging markets. Social acceptance risk and corporate social responsibility are new to the list this year, suggesting different strains on business as the economic recovery takes shape. Both are seen as particular threats to the reputation of the asset management and banking industries, while maintaining social license to operate threatens mining and metals companies, and several below-the-radar threats exist in technology, telecommunications and the public sector.

Asset management, banking and, to a lesser extent, insurance are facing a political backlash and regulatory overhaul following the global financial crisis. Oil and gas, real estate, and mining and metals are contending with efforts by resource-constrained governments to gain revenues. In addition, public sector organizations must cope with the challenging decisions made by political leaders under pressure.

“Organizations across all sectors need to continue scanning the environment to identify emerging risk issues,” says Hubert. “The ability to anticipate threats, respond and continually adapt continues to be a critical part of the management process, especially as Canadian businesses look to new opportunities beyond our borders.”

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