Anticipate a rise in banks’ risk management profile if credit conditions deteriorate, driven by a contracting economy, continued supply chain challenges and pressure to maintain profitability levels. Certain industries will be more susceptible to economic pressures requiring earlier attention than others; early warning signs will be key. Concurrently, as banks leverage more digitized processes as a cost-reduction strategy and in order to reach customers more efficiently, risk management strategies should be embedded as part of the development of these emerging areas. High among the possible risks in 2023 due to a contracting economy are increased bad debt reserves, more writeoffs, tightened liquidity, and the need to determine whether current models match current economic conditions.
Bankers will be under pressure to not only embed risk management capabilities into their newest digital tools in order to maintain appropriate oversight but also to eliminate risk management redundancies. Should economic conditions worsen, bank executives will need to increase vigilance over risk taking as some employees may be tempted to cut corners in the pursuit of business results. Vendor-risk management should rise as banks increase the number of third parties they use as part of their efforts to cut costs and offer new digital products and services to customers. These matters are further complicated by the evolving capital regime being adopted by regulators around the world, prompting organizations to reconsider asset composition, structuring options, and customer profiles. Further continuing evolution of business models to digital platforms, heightened geo-political risks, and climate concerns have elevated the focus on and importance of operational risk and resilience, including thirdparty risk management and dependency.
Regulators are relentlessly pursuing what they perceive to be “weak links” within risk programs and coverage. Regulatory agencies in 2023 will continue executing against their broad and ambitious agendas. Expect increases across supervision, enforcement, and investigations under both old and new regulations – even with a heightened discord in public policy and increasing judicial challenges to regulatory authority.
The KPMG Regulatory Insights practice has released the Ten Key Regulatory Challenges of 2023, featuring client perspectives, key regulatory recaps, and actionable steps to help mitigate risk. Read the full report.