Banking business considers Integrated Enterprise Risk Management development for moving beyond a “silo” configuration of the risks universe
Banking business is changing and obviously becoming an activity of an engineering nature rather than of a pure financial nature. Under such circumstances, Banks started looking for an integrated risk approach like in industrial enterprises, while keep compliance with specific regulations in banking sector, too.
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It has become obvious that failures in risk management processes can cause serious damage to an organization. Frequently, this is due to visibility’s lack of a consistent big picture, while focus gets lost with a multitude of apparently minor risks, instead. This way, seemingly from nowhere, plausibly, a combination of events turns out to create a major problem. The root cause of the problem is often the fact of not determining the impact of combining and aggregating different categories of risks. |
Consequently, a more advanced risk management process enables early recognition of the potential risk—and the ability to respond in a timely fashion to the early warning indicators revealed through trend analysis and risk aggregation. The solution is to implement a framework and an efficient oversight system for relating risks to each other, and a consistent way of measuring risk impact on the achievement of corporate objectives by aligning key risk indicators (KRIs) with key performance indicators (KPIs). |
Assessment of different types of risks is often managed with disparate processes in separate parts of the organization. Attempting to consolidate the multiple reports without having an integrated approach would end up trying to make sense of a typically confusing attempt to mix the figs and lemons emerging from different risk categories and assessment processes.
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Subjectivity and bias in risk assessment can generate a significant flaw in the whole risk management processes, as there is no effective mechanism for comparing and normalizing risks in a consistent, uniform and meaningful way. Integrated ERM provides management at all levels and across all three lines of defence with the ability to review up-to-date dashboards reflecting the most current and quantified state of risk assessment, allowing immediate more valid quantified risk comparison and aggregation and a more informed decision making process. |
Additionally, another common challenge to successful ERM in many organizations is the divide between risk management professionals and business management. Originally, such segregation was considered as being the main solution for mitigating the risks, according to banking regulators, which really is, but within an integrated risk culture and an integrated organizational framework. Instead, risk professionals often lack the business context to fully understand business related inherent risks, and business managers’ lack practical understanding of the role of risk and compliance control frameworks. |
By establishing an integrated approach in which risk management frameworks, regulatory requirements, controls and compliance processes are all linked together, both business managers and risk management professionals are encouraged to know as much as possible about risks and see the world through a similar lens and context.
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Risk knowledge means risk intelligence, while lack of risk knowledge means any risk either has equally 50% likelihood to occur and not to occur, which is a neutral objective ignorance, or even worse, it would certainly (100%) materialize or on the contrary, would not happen with 100% certainty, which both latter cases are of the subjective ignorance nature generated by overconfidence. |
Integrating all stakeholders as part of a single program, and on a single shared platform, transforms the traditional, disjointed “silo” approach (with the typical traditional approach of viewing risks in isolation) into unified oversight—and gets the entire organization working together in the same direction for achieving objectives and driving performance. |
