The challenge of enhancing risk governance

The challenge of enhancing risk governance

Banks have introduced risk management structures and reporting procedures in accordance with regulator demands, but they still lack sophisticated risk systems or strategic approaches.

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The Financial Stability Board reviewed bank adoption of risk governance best practices, noting spotty progress in creating stronger risk management functions, the establishment of risk appetite frameworks or banks’ ability to assess risk culture.

What are the banks doing?

  • Banks have made progress in elevating Board level focus on risk, to improve understanding, measurement and reporting of risk. However, bank groups require risk data, systems and architecture investments to capture group-wide and local risk. 
  • Banks have enhanced the role of the CRO function but must find ways to apply risk management capabilities to support strategic and commercial decision-making. 
  • Banks will need to incorporate the FSB’s proposed ‘risk culture indicators’ to show that they are truly reforming their internal approach to risk, by demonstrating genuine leadership commitment and accountability, by encouraging people to challenge risk practices, and by providing incentives to do so.
Review this section (PDF 2.87 MB) for highlights of new risk governance regulations and best practices, an assessment of bank progress to-date and discussion of the outstanding challenges.

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