Resilience is the new stress test or resolution plan.
Front-office staff must be fully trained on risk, with compliance officers advising and supporting the control function in the front line. Regulators will expect firms to position operational resilience squarely as a boardroom priority, alongside financial resilience. Boards will need to move to a mindset of: “This is likely to happen, so let’s be prepared.”
3. Manage and protect data: Banking is a data-reliant industry. Banks require timely, accurate and meaningful data and customers expect user-friendly communication tools. Investors and the wider market require greater access and transparency. Going forward, banks will have to better manage data and also contend with increasingly stringent demands for data privacy. Significant investment has been made in storage and accessibility, but banks need to focus more on data architecture, analytical capabilities, and development of an integrated data privacy framework with full risk management disciplines.
Risk priority
93%of banks surveyed in our annual bank risk survey said improving data quality is a top risk management priority over the next 3 years.
4. Address drivers of misconduct: Initiatives to improve industry culture and ethics can go so far but will have limited impact without a framework for accountability. The challenge for the conduct agenda is to move from setting the “tone from the top” to embedding positive culture and behavior throughout the organization.
The journey to better compliance
Banks need to manage and anticipate emerging risks. Digital transformation will help, but as our annual bank risk management survey highlights, risk managers must quicken the pace at which they embrace and deploy new technologies.
The demand for accountability is broadening in scope. Environmental, social and governance issues, and particularly the sustainable finance agenda, must become key elements in strategic planning and risk profiling. Change is essential, but it can, and should, be driven from the top.
At board level, greater diversity is becoming not just a regulatory expectation, but an operational necessity. Individuals whose knowledge extends beyond financial risks and regulation will be positioned to break down silos and inject deeper and broader corporate governance and risk oversight.
It’s time for management to deliver representative governance and risk frameworks that afford better alignment, improved data quality and new business models that enable sound market and customer outcomes. The aim is to get the right stakeholders to evaluate the risk implications on an end-to-end basis of operational, strategy and business decisions across the value chain, including the product life cycle, marketing, client segmentation, pricing and remuneration.
If boards and senior management become proactive about the future, build the right skills and develop new ways of working, they can deliver a more agile and efficient risk and compliance frameworks equipped with the latest technologies, enhanced governance frameworks and new roles with new skill sets.
Summary
While banks and regulators are still addressing unresolved legacy regulatory issues, technology continues to transform the industry in unforeseen ways. Firms need to respond to both legacy issues and emerging risks with technologies, enhanced governance and the right talent.
