SIX SIMPLE BUT POWERFUL ACTIONS TO TAKE IN THE BANKING INDUSTRY 2018
As the complexity of risk management in banking increases, the function should continue to adapt at pace and expand its remit. CROs should strive to meet demanding quantitative and qualitative standards—considering their internal and external stakeholders—while keeping costs under control. They should do this while adapting to continuous regulatory change and rapid disruption by unprecedented technological innovation, emerging risks and geopolitical instability.
Today more than ever, modern banks need a risk function that goes far beyond compliance to become an integrated, strategic cog in the primary gears of the business.
Based on our research, in-depth consultations with banking risk leaders and our own observations, we have compiled a set of six simple but powerful actions that can help risk functions to rise to these challenges in this decade of metamorphosis.
- DRIVE THE BUSINESS TOWARD DIGITAL AND TECHNOLOGICAL INNOVATION
Robotic process automation, artificial intelligence and a wide range of data-driven technologies can help to speed up operations and improve measurement, modeling, analysis, integration, predictions and anomaly detection. But not every bank is at the same stage, and many should work on the fundamentals of their IT infrastructure and build internal skills before they can seize further innovation. Whatever the stage of development, however, the risk function should consider pushing—and we believe leading—the business and IT to advance in these areas as fast as possible
- PUSH FOR TOP-LEVEL INTEGRATION
Risk management is already becoming more integrated with operations, IT and other parts of the business. But greater integration is often needed with the CEO and board over strategic decision-making. As an input to strategic planning and in monitoring subsequent execution, risk should offer the board a clear and cohesive view of financial, non-financial and emerging risks.
- START “SKILLS BLENDING”
The risk management function needs people with quantitative and analytical skills, but also creativity, technology acumen and industry knowledge. This blend will support more alternative and innovative solutions—which are essential to adapting to an ever-changing environment. Risk functions need new talent and should be selecting university graduates to build new competencies and balance the strengths of their risk team. They should also seek to collaborate with universities that allow for joint research with academics, and draw on the latest breakthroughs across a range of disciplines—such as quantitative methods, economics, finance and computer science.
- DATA MANAGEMENT JOURNEY CONTINUES
Banks need to keep investing in risk data aggregation and reporting systems with the flexibility to integrate multiple data sources and strong data governance features. But the risk function needs to sit above data management. Instead, risk talent should be engaged in information analysis, while automation and supporting professionals manage data quality, integrity, integration and technical issues. This should help capture the full analytical value of professional risk practitioners.
- EMBRACE BUSINESS AND INDUSTRY TRANSFORMATION
Banks should transform not just to compete, but also to survive. The risk function should strive to be more commercially aware than ever in order to evolve its role to support the business. For many, this could mean evolving away from being a “control function” and toward being a transformation leader and joint architect of new business models.
- ESTABLISH A PROACTIVE RELATIONSHIP WITH REGULATORS
A new relationship paradigm between regulators and banks is emerging. In place of the old model, where regulators were seen as imposing rules on banks, there is now a more open dialog taking place. Banks and regulators now see themselves as part of an ecosystem that helps to protect the financial system. Each party plays a role and has to work with the other in order provide the appropriate safeguards. To make this work effectively, risk managers should be more proactive in their approach; for their part, regulators should be more receptive to industry perspectives. This new model will take time to be fully embedded, but it can be of benefit to the entire financial system.