Financial institutions’ progress and challenges as they strive for Operational Risk Management Excellence
Operational risk continues to be a heightened area of focus for financial institutions as the industry wrestles with challenges arising from cyber threats, third-party concerns, trading, conduct and culture issues, stress testing requirements, and technological innovations driving greater opportunities for process automation and digitization. While regulators recently reduced some requirements for smaller institutions, they maintain a keen focus on ensuring firms develop and maintain effective risk management structures to enable them to identify, assess, monitor, and manage risk with ever-increasing speed and accuracy. These events, combined with management’s efforts to derive greater risk intelligence through data mining and analytics to improve strategic planning, business performance, and customer experience, contribute to an increase focus on operational risk.
Aligning operational risk management (ORM) with strategy is critical for financial institutions to enable strategic change, improve business performance and enhance their customers’ experience, however only half of the firms surveyed with less than $250 billion in assets leverage their ORM to challenge business models, according to a report by KPMG LLP (KPMG) and The Risk Management Association (RMA).
KPMG and RMA teamed to update and redeploy the Operational Risk Management Excellence Survey (the “Survey”) completed across North America, Europe and Asia in 2014 by over 85 leading financial institutions, including 20+ Global Systemically Important Banks (GSIBs).
According to the Survey larger institutions appear to be more advanced in aligning ORM with strategy, with 90 percent at or above $250 billion in assets leveraging ORM to challenge business models.