Lessons for the future

Lessons for the future

Effective business management rests on a robust process of preparing for threats and a strong risk governance framework.

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Our analysis of the 20 systemically important banks shows that there is some confidence among these organizations that they have the capabilities and governance to meet the challenges of the future.  However this is hard to evaluate independently, due to the fact that a significant number do not formally assess the effectiveness of the Board Risk Committees (BRC) and that an even higher number do not independently review the stress-testing process. 

Global regulators have set a very high bar. As the survey highlights, greater automation of data gathering and analysis has become a key area of focus, requiring significant investment by the SIBs in systems capability. However, perhaps the key question should be to what degree of granularity of data and analysis is necessary to achieve the desired regulatory objectives? Or, are the banks taking sufficient action in other areas such as lower risk appetite and risk tolerances, and improved risk management capability to appropriately   manage risks.

Three issues banks need to address to strengthen risk governance

  • Developing a more robust process of risk-data analysis to help the BRC work through problems and analyze future threats, both medium- and long-term.
  • Ensure that the risk appetite statement is not only aligned with, but also embedded in, the strategic planning process.
  • Establish a methodology to measure the risk culture and a plan to tie incentives (remuneration or otherwise) to risk measurements.

We see a real determination by Boards and senior management to tackle these challenges. We hope this report will help management teams to validate their plans and assess their own progress against the standards expected by the industry.  

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