Risk management in financial services continues to transform in response to regulatory pressures, technological advancements, and evolving market demands. Several themes in 2024 highlight these adaptive strategies and technology’s role in shaping the function’s future:
From credit to enterprise
Risk management has traversed from credit and market risks to encompassing operational, liquidity, and non-financial risks, including cybersecurity.
Enterprise risk has become the entire Executive Committee’s responsibility with the Chief Risk Officer (CRO) as architect and orchestrator of predictive outcomes and mitigating strategies.
Reporting lines have changed too. Multiple institutions have made compliance functions independent of the CRO, with conduits to CEOs and the Board emerging, aiming to enhance strategic positioning and autonomy of compliance function.
How is your organization experiencing the evolution of the risk and compliance function?
Cybersecurity’s impacts
The integration of technology, particularly AI and machine learning, is revolutionizing risk management practices, automating processes, and enhancing data analysis capabilities.
A crucial focus on cybersecurity reflects the sector’s vulnerability to digital threats, which have vastly increased in complexity versus a decade ago. Therefore, demand for cybersecurity talent has surged.
To bridge the talent gap, organizations are upskilling existing staff, partnering with educational institutions, and exploring innovative recruitment strategies.
How are you assessing the impact of cybersecurity on your risk management talent strategy?
New paths and profiles
Technically sound risk leaders with strong credit or market risk experience increasingly require non-financial risk expertise, design thinking and a commercial enterprise perspective. Global banking CROs manage hundreds of people, many with non-financial risk backgrounds, including software/API development teams.
Compliance as a function is increasingly integrated with technology, leading to automation in the most sophisticated institutions and, as a consequence, a further consolidation of non-financial risk and compliance.
How does your organization balance technical, commercial and leadership requirements within the risk management functions?
DEI/ESG = risk management
Corporate reframing of ESG and DEI is creating less controversial space within risk management for organizations to identify and mitigate risks associated with climate change, social issues, and workplace policies and practices.
Interest in diversifying risk and compliance leadership remains, and the function has had higher representation in senior compliance positions compared to others. Demand for diverse talent continues to outpace supply.
Compensation increases have leveled off from the post-financial crisis era. Financial crime roles have seen the biggest upticks.
What steps are you taking to add diverse thinking and experience to your risk leadership?
Risk management’s evolution and advancements in technology set the stage for a future where the function is more integrated, proactive, and technologically driven. No time like the present given an environment of continuing volatility and regulatory scrutiny across sectors and geographies.
Risk officers today need a learner’s mindset; given the accelerated pace at which risks emerge, curiosity and openness to change is an imperative that needs to be nurtured and sustained.
Most CROs today acknowledge that their function alone cannot protect the institution entirely given an ever-expanding ecosystem of third-party relationships, whether they are clients/counterparties, vendors, or strategic partnerships.
Institutions that leverage strategic partnerships in risk management can accelerate innovation with expertise, technology and data. Great risk officers are open-minded to accessing these resources and how to get the most out of data, technology and human capital.
How is your organization strengthening risk management as a function to meet regulatory requirements and safeguard against threats?
The role of Chief Compliance Officers (CCOs) and their teams is expanding, driven by regulatory pressures begun in banking and now felt by other sectors including insurance and investment management. Financial institutions are increasingly seeking compliance professionals experienced in managing significant changes or crises, highlighting the value of expertise in financial crime and stakeholder management across the organization.
Technology’s integration with compliance functions means high demand for leaders proficient in digital tools to bridge the gap between compliance requirements and technological capabilities. Digitally savvy professionals who can leverage automation to navigate and influence the evolving regulatory landscape win the plum roles.
On the cybersecurity front, first line cybersecurity operations executives are moving into second line cyber governance roles that have reporting lines into CROs and other risk officers. These individuals, like their operational risk counterparts in the past, have specific front line technical expertise and know how the sausage is made. This improves cyber governance as a function in terms of credibility, with compliance as well as with internal technology leaders, including former peers in first line cybersecurity.
What initiatives is your company prioritizing to enhance DEI and ESG efforts?
