The four things that will make or break bank risk management

Written by FinTech Futures
28th September 2017

Bank risk management: make or break

What will make or break bank risk management? Victoria Chatterton, strategic director of RiskMinds (Banking Technology‘s sister company), gives the lowdown.

1. Existential risk and the future for the banking business model

Banks as we know it are facing an existential crisis. Are we reacting to change quickly enough to ensure our business model is fit for purpose?

Market changes, the threat of digital innovation, the rise of challenger banks and regulatory development are all coming together in a perfect storm. Risk managers know this, they can see the writing on the wall but what can they do about it? How can they measure this risk, quantify this risk and more importantly, how can they help their firm overcome existential risks before it’s too late?

2. Regulatory fragmentation

Regulatory policy is turning on its head. Five years ago, would the banking community ever have imagined a world where we are trying to fathom the regulatory implications of a Trump presidency in the US and Brexit challenging the concept and direction of the European Union? Reflecting the rising tides of political nationalism, isolationism and protectionism, the regulatory themes du jour centre around deglobalisation and balkanisation.

How fast will the pendulum in the US swing back towards deregulation and what will this do to the global playing field? Will the rest of the world follow suit and what does this mean for global banks? Too many questions and not enough answers so far! The Basel Committee has been the guiding light in banking regulation since 1974.

Are the changes we see today moving us into a period where Basel hibernates or, more worryingly, is this the beginning of the end for global regulatory cooperation?

3. Embedding risk culture into the DNA of the firm

As Peter Drucker aptly put it, “Culture eats strategy for breakfast”, so it is only right that culture is taking up more and more of a risk manger’s time. How we can instil the right values across and organisation to drive the desired behaviours has become the million-dollar question.

The traditional bonus culture, some would argue, caused bank employees to override their moral compass in search of greater profit but we are yet to replace it with something that drives employee behaviour in as compelling a manner.

Risk managers are well used to being risk cops but to achieve a truly effective risk management culture, all areas of the bank have to be self-policing and every bank employee has to think like a risk manager. How do we achieve this? Does it have to be profitability vs social responsibility or can we find a way for each to incentivise the other?

4. Data and digitisation – we have a reputation to protect

Data and digitisation have long been buzz words for the future of finance but managing the risks associated with these is truly a daunting task. Data security and privacy are the driving forces behind financial regulation currently.

So… how can we use data in a smarter way to meet compliance and risk needs and also to add more value to the business? These risks are less tangible so understanding and classifying them neatly will always be a challenge.

For every risk silo (vendor risk, op risk, business model risk, regulatory risk, to name a few) the risk manager needs to evaluate the business impact hand in hand with the operational risk and costs of that change. From the board’s perspective this all has the potential to decimate the increasingly fragile creature that is the firm’s positive reputation.

These themes will be discussed in great detail at the 24th annual RiskMinds International conference, held on 4-7 December 2017 at Okura Hotel in Amsterdam. It will feature over 200 speakers including:

Leading chief risk officers (CROs), such as Keishi Hotsuki of Morgan Stanley, Mark Smith of Standard Chartered, Steven Rijswijk of ING, Lewis O’Donald of Nomura, and Rafeal Salinas of BBVA.
International supervisors, including Neil Esho of the Basel Committee, Andrew Gracie of the Bank Of England, and Stefan Walter of the ECB.
Bank practitioner experts on IFRS 9, operational risk, emerging risk, recovery, resolution, liquidity risk, model risk, central clearing, CCPs, initial margin, FRTB, market risk, credit risk, XVAs, pricing, stress testing, conduct, culture, compliance, reputational risk, fintech.
Plus external perspectives on risk from Baroness Eliza Manningham-Buller the former head of MI5 on human risk, international hacker Freaky Clown on how he used to rob banks and convicted rogue trader Kweku Adoboli on spotting your firm’s whales.