Financial Services
Financial institution risk management
The financial crisis laid bare the inability of many financial institutions to properly identify, understand, and control the risks they were facing. Weak risk governance and risk management put individual firms in jeopardy – with many failing – and undermined the stability of global markets.
The industry has responded by investing heavily in strengthening its approach to overseeing and managing risks. Board-level oversight has changed significantly: more knowledgeable directors have been appointed, new committees created, and reports and systems have been upgraded. The rigor around articulating and measuring each firm's risk appetite, and ensuring its tight linkages to strategy and key business decisions, has improved materially.
Regulators have stepped up their game in monitoring macro-economic and firm-specific risks. New institutions have been formed, stress testing is now commonplace, and risk reporting to regulators has grown exponentially.
However, improving risk governance is a journey. Firms started from different positions, have differing business models, and face different risks. Yet common challenges remain, including implementing work on risk appetite, managing complex data flows, finding time for director-level risk dialogue, and spotting emerging risks. Industry-wide dialogue helps.
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