With a whole host of regulatory and organisational challenges on the horizon, financial institutions will face a number of risk management issues over the coming months. Here, the experts at Wolters Kluwer outline the seven most important areas facing financial institutions in the next year.
1. Risk Appetite Definition and Measurement: Financial institutions are transforming the way they measure and monitor risk from the top down. Many have completed their Board-defined risk appetite statements and are now exploring ways of measuring and sharing information on how well the organisation is reflecting this appetite.
2. Three Lines of Defence Re-examination and Organisational Structure: Many organisations are taking a deeper look at how their internal departments work together to manage risk across the business. For many US-based organisations, the raised standards demanded by the Office of the Comptroller since 2014 has been a driving factor here.
3. Regulatory Change Management: A spate of new regulations, especially in the US at both the federal and local level, mean that organisations are now having to develop a more systematic and effective way to monitor and implement regulatory changes.
4. Cyber Security: Cyber security one of the hottest topics of the day for operational risk managers. Credit card, payment and wire fraud are all major concerns.
5. Third Party Risk: Pressure by regulators is ushering many organisations towards increased monitoring of vendors and suppliers. This includes enhanced due diligence and even Board level involvement in critical third party decisions, in order to manage and mitigate risk.
6. Data Quality: Released in January 2013, The Basel Risk Data Aggregation report put data quality at the forefront of operational risk concerns. The emphasis is on overall data quality and the integration of financial and non-financial risk.
7. Human Resources Risk and Staffing: Despite soaring wages, turnover in risk and compliance remains high. With demand increasing faster than supply, organisations will need to work hard both to recruit and retain high calibre critical staff.
“Although financial services organizations continue to place greater emphasis on identifying and managing risk, new challenges continue to emerge, making it difficult to prepare for what’s ahead,” said Amy Downey, US banking and regulatory expert at Wolters Kluwer Financial Services. “As financial institutions move forward, it is critical to pinpoint opportunities to improve the alignment of operational risk management with business strategy.”