2022-12-09-KPMG-Risk_transformation_—_a_breath_of_fresh_air_for_the_CRO_agenda_26页_1mb

Risk Transformation Summary

Overview

This report analyzes the current challenges and opportunities facing Chief Risk Officers (CROs) in the banking sector and proposes nine focus areas to enhance the efficiency and effectiveness of the risk management function.

Focus Areas

1. Leverage Synergies Through Standardization

• Standardize risk management approaches across different risk types to avoid redundancy.
• Joint identification exercises and unified risk taxonomies improve consistency and efficiency.
• Recipient-oriented reporting and central reporting hubs streamline communication.

2. Standardization Requires an Overarching Framework

• Establish a cross-risk framework to enable synergy across risk types.
• Develop minimum standards for risk identification, assessment, and reporting.
• Align risk strategies with the Risk Appetite Framework (RAF) for unified risk management.

3. Effective ERM for Interlinking Risk Types

• Implement an Enterprise Risk Management (ERM) function to integrate different risk types.
• ERM typically occupies 2–4% of the Risk function’s FTEs.
• Avoid oversized ERM functions to reduce costs; smaller functions may still deliver synergies.

4. Clear Role Allocation Across Three Lines of Defense

• Define responsibilities between first and second lines of defense to avoid conflicts and inefficiencies.
• Improve collaboration among non-financial risk (NFR) functions like outsourcing, legal, and data protection.

5. Use Agile Working Methods to Increase Efficiency

• Apply agile methodologies more widely in projects and line functions to gain efficiency.
• Agile structures (collaboration, microservices) improve responsiveness and flexibility.
• Banks are lagging in realizing the full potential of agile implementation.

6. Mature Risk Functions Require Customized Solutions

• Established (regulatory-driven) risk functions should focus on streamlining and efficiency.
• Less mature risks (e.g., ESG, outsourcing) need more immediate attention.
• Early efficiency considerations can help achieve higher maturity levels faster.

7. Centralize Model Management for Efficiency

• Centralizing model development reduces duplication and IT costs.
• Establish uniform data collection and validation libraries across risks.
• Data quality and reusability can be improved by centralized management.

8. Central Reporting Hub Improves Efficiency

• Consolidate reporting processes to increase efficiency and standardize outputs.
• Reduce FTEs in reporting by centralizing data repositories and infrastructure.
• Clear separation of reporting, monitoring, and analysis ensures high-quality insights.

9. Integrate Emerging Risks

• ESG risk is a priority; integrate it systematically into existing risk frameworks.
• Use cross-risk frameworks to incorporate ESG into all relevant process methodologies.
• Align ERM and CRO leadership to drive emerging risk integration.

Key Takeaways

• Cost-Effective Risk Management: Streamline processes and resources to handle growing regulatory demands.
• Leadership Focus: CROs should prioritize efficiency, technical skills, and oversight of ESG and NFR.
• Technology Integration: Leverage microservices and agile architectures to improve flexibility and usability.
• Culture of Transparency: Standardized reporting, clear roles, and proactive ESG integration are critical.

This whitepaper provides CROs with actionable strategies to modernize and strengthen their risk management functions.