As protecting an organisation from risk becomes increasingly complex and costly – yet more vital than ever – the risk function of banks must embrace new ways of operating. Risk must get more efficient, find new ways to tackle cultural issues, embrace the power of technology, and recharge its role in leadership to add the most value to organisations.
The risk function of a banking organisation has a critical role, but new regulations, the need for specialist capabilities, and the fast-paced, global, competitive environment are putting immense strain on the function. Risk must revolutionise itself in order to remain relevant, value-adding and on the front foot of a continually changing risk landscape.
Here are four key areas that risk functions must overhaul to ensure they are offering the best protection for banks in this increasingly disruptive world.
In the face of cost pressures and emerging risks, the risk function must be simultaneously efficient and effective. This must take into account the capabilities of people in the team, the skills required, and how it can be more time and cost effective.
“The risk function needs to move away from solo subject matter experts to more outcome focused risk people,” says Mike Ritchie, Partner, Risk Consulting, KPMG.
The second step is to look at processes and the operating model, with the goal of seeing how it can be refined to improve results.
“It is important that CROs embrace all the technology options that could fundamentally change and reduce the time it takes to do risk activities,” he says.
The risk function must be open minded to constantly changing culture and conduct risk, and innovate to solve challenges.
“What has been done in the past is not going to keep organisations and their customers safe in the future,” says Jacinta Munro, Partner, Compliance and Conduct, KPMG. “Expectations of customers, regulators, media and the public have changed and businesses must respond.”
Steve Clark, Director, People and Change, KPMG says that with the Australian Securities and Investment Commission’s (ASICs) increased focus on banking and insurance products, risk functions will have even more reason to improve their approach to culture and conduct risk.
“More regulation could encourage firms to take a holistic approach to the customer,” Clark says. “Examples in Europe show it’s about establishing governance that looks at the whole cycle, so businesses can focus on assuring customer outcomes – moving away from a focus on just financial outcomes for shareholders and the firm.”
Cognitive Computing, Robotic Process Automation,
Guy Holland, Partner, Technology Advisory, KPMG, says the risk function must be at the frontline of this technology change. It needs to engage with advanced technology to broadly and deeply assess risk. For example, big data and analytics can boost the speed, insight, accuracy and coverage of critical risk oversight functions.
“Much of the compliance, monitoring and review activities currently performed by risk staff will be replaced with cognitive and automation technologies,” Holland says. “Traditional manual verification of small sample sizes will no longer be effective.
The risk function has long supported leadership by assessing and warning of the risks that could impact an organisation’s ability to fulfil its strategy. However, it’s time for risk to step forward and take a leadership role of its own.
Martin Green, Partner, Advisory, KPMG says risk teams of the future need to up skill now, and demonstrate the powerful insight that risk can offer in this disruptive environment.
“As organisations become more complex, and data influences more decision making, the need for CROs and their teams to take a strategic position is fundamental,” he says. “Businesses will need people who understand the bigger picture, how to turn data into business intelligence, and how to manage risk.”
Amid these pressures, the risk function of the future needs to step up the value it adds to its organisation, demonstrating its power to confidently steer businesses into the unknown.
For more information on how risk must transform, you can read more in our series of insights, Risk function of the future.
KPMG's analysis of the major Australian banks' full year financial results.