Why enhancing banks’ controls needs to be priority for the COO

Bank COOs need to optimize controls to improve customer experience, simplify end-to-end, reduce cost and accelerate transformation.

In brief

• Modern, technology-led controls offer significant customer experience benefits, can materially accelerate change delivery and enable a simpler, safer bank.
  
• As bank COOs transform operations, there is an opportunity to enhance controls in parallel, working closely with the CRO and across the three lines of defence.
  
• Bank controls remain mainly manual, costly and duplicative, reflecting a cultural and historical trend for adding, not removing, controls.

Working in an environment of intense uncertainty and continually high regulatory scrutiny, bank leaders are being constantly challenged. The Chief Operating Officer (COO), along with their C-suite peers, must focus on navigating this volatility, while delivering successful transformations, that save costs, focus on customer and employee satisfaction, all while making the bank more resilient.

In a previous article, we wrote about the importance of people in helping COOs achieve success. In this piece we wanted to focus on controls. This is a critical topic for COOs given they typically own the majority of controls in their organizations, and in some cases have formal regulatory responsibilities.

The COO’s focus is aimed at the strategic necessity to deliver seamless end-to-end performance and transformation execution. This allows them to drive a more holistic view of control optimization, capturing the true business case across customer, colleague, change, cost and control benefits. Execution should be embedded within broader transformation initiatives, as well as through discrete pieces of work. This will be even more important as banks focus on product simplification and rationalization.

Benefits from enhancing controls

Controls remain a fundamental element of the compliance and risk infrastructure of a bank. As technology and demands have evolved, it’s clear that standardising, eliminating, enhancing and automating controls and testing methodologies offers several wider advantages.

• Materially improving customer experience - Optimizing a bank’s control estate is a key, sometimes overlooked, element of making a customer journey slicker and friction free. Ensuring retail, corporate, commercial and institutional customer experience across journeys is not needlessly impacted by duplicate, excessively manual, or unnecessary controls, will deliver material tangible business value. Clearly, this needs to be in context of not being to the detriment of managing risk within the appetite of the board.
  
  
• Accelerated change - Optimized controls, over both change execution risk and delivered risk (being new or modified risk from the delivery of material change initiatives), should enable faster change delivery, whether being delivered through waterfall, iterative or hybrid delivery methods. This lowers the change delivery cost and shortens the time to business case realization.|
  
  
• Increased board confidence - An enhanced control framework should give bank leaders confidence they have a robust control regime to handle new markets, more sophisticated products, large and more complex transformations, or indeed any other significant change which might materially shift the risk profile of their organization.
  
  
• Enhancing profitability - Savings arise as banks de-duplicate and de-layer controls that have been ‘bolted-on’ over the years. This includes the costs associated with the performance of the manual controls, the ongoing testing and monitoring that manual controls require, as well as potential remediation costs around controls which have failed.
  
  
• Resilience - Increased use of technology, as well as increased automation of end- to-end processes themselves, will allow banks to effectively identify, monitor and respond to risks in real-time, allowing them to quickly act around any new and emerging risks and issues.
  
  
• Better colleague experience - Reducing the time spent on performing manual controls, and their manual testing, increases the ability of talent to focus on deeper customer centricity, move toward world-class execution of ongoing transformation initiatives, and contribute to a shift in culture.

Why cultural change is central to enhancing controls

The control landscape in banks today is analogous with the state of their IT legacy systems a decade ago. There was little strategic planning involved, as tactical additions were “bolted on”. Today, in many instances, control and oversight are now arguably more onerous than the execution of the process or journey itself.

Banks have tried to address the many challenges around controls. In many cases, they have introduced a Chief Control Officer (CCO), as a direct report into the COO. In other institutions, the ownership of most controls has been centralized into the primary operational function. Yet many of the control issues remain. One of the main reasons for a lack of progress is a cultural lack of appetite to remove controls. This has often been caused by a sustained historic reluctance to remove controls in case of an unintended downstream impact somewhere, an understandable concern in a highly regulated environment.

Even when a COO has identified controls those are not needed, successfully cascading that top-down through a bank has proven to be difficult. This reinforces a key point from our previous article – organizations that put humans at the centre of transformations are 2.6 times more likely to succeed than those that don’t.

We have seen some limited progress, such as piecemeal de-duplication and some increased automation, but it is yet to be expansive or bank-wide. Expanding across major end-to-end value streams, underpinned by a holistic business case is the logical next step. Ensuring organization alignment and empowerment end-to-end, with integrated involvement across the three lines of defence, is critical and will require strong leadership and cultural change.