Other parts of this series:
Are the teams connected to your risk function equipped to and ready to share? Because when it comes to coordination, sharing is the key.
Accenture’s Global Risk Management Study highlights ongoing integration and coordination challenges that face banking risk management teams. In our study’s first year (2009), only 15 percent of respondents reported having an integrated IT risk infrastructure. Over the years, that gap has closed only incrementally. This year, 67 percent of respondents report roadblocks resulting from a lack of integration across the enterprise.
To centralize or not?
New this year, though, is how our banking respondents view centralization. We first examined centralization trends in risk management coordination by risk type (market, credit and liquidity risks), and the results are somewhat contradictory. The 16 percent who are currently fully centralized expect to see an increase in coordination to 24 percent. Even the 20 percent of respondents who are fully decentralized, operating at mostly regional levels, expect more centralization in two years’ time.
However, the majority of respondents that currently operate both a group and regional level believe the trend is toward decentralization. Forty-three percent of this cohort believe that coordination by risk type will actually decrease by nearly 10 percentage points overall in the coming two years.
Interestingly, we see the same pattern of results in our examination of the coordination of risk management across lines of business. Those fully centralized across lines of business expect an increase of 10 percentage points in two years’ time and similarly those fully decentralized expect almost a halving of their full decentralization rate. Similarly, the majority of respondents fall in the hybrid model of centralization and believe that only 25 percent of risk functions will be coordinated across the business in two years’ time.
Lastly, we looked at coordination of risk management activities across the overall business and found a lack of strong sentiment regarding coordination one way/another. While 40 percent of respondents felt there was limited coordination between local- and group-level risk management functions, nearly 30 percent felt that this was neither true or untrue.
Where do these seeming contradictions lead us? We see the role of risk manager becoming more integrated with the business and thus, demand has been put on the risk function to respond to both global and local needs. One intensive local need to highlight from our study findings is regulations; 78 percent of study respondents cite they are facing increasing demands in this area.
Being an integrator of risk is a challenging role, not only in terms of serving global and local needs but also in terms of cost. Over 50 percent of respondents reported duplication of risk management efforts across lines of business.
An ongoing gap
While banks’ risk functions have had steady success since 2009 in coordinating with the business, a lack of integration with other business functions has always been a gap cited for improvement. We see an upward trend in improvement. In 2015, 7 percent of respondents said the risk and finance function worked closely together and provided joint input into enterprise risk strategy. That number more than doubled, to 16 percent, in this year’s study. And in two years, 30 percent of respondents expect that level of coordination between risk and finance.
The other good news is the steady growth in influence among our survey respondents. Risk leaders have evolved from leading a very siloed function in 2009 to gaining a direct line to the CEO by 2013, and even a seat “at the table” in 2015. That positive trend is tempered by the challenge to integrate finance and risk. Only 38 percent of respondents say the finance and risk functions are working together—but they are not working together to help guide enterprise strategy.
So, will risk leaders in banks take their seat at the leadership table to drive further integration? Time will tell, but we believe that working with common data sets and flows can be a powerful lever in addressing coordination challenges cost-effectively.
We expect risk leaders to raise their game and be talented in many disciplines in order to rise to the integration challenge. In my next post, we’ll explore talent needs.
How can risk managers balance both coordination and cost management? We believe sharing data is the key. Integration can be driven with increasing efficiency when data is at the core of the bank’s operating model. To effectively and efficiently share and use data means being a smart technologist, employing new technologies and a coordinated approach across the business.