Baringa Partners recently hosted a breakfast roundtable event to launch findings from our latest annual operational risk survey. The attendee list included operational risk specialists from around 20 firms across the financial services industry. The attendees came together for an open discussion on some of the most pressing challenges that the industry is currently facing.
A prominent topic of the event was the optimal structure of operational risk teams within firms. Attendees discussed how to strike the right balance between risk management specialists (focused on a particular risk type) and risk management generalists, to create the most effective operational risk management structure. Some participants considered an operational risk team largely consisting of specialists was the most effective set-up for ensuring rigorous operational risk management as teams comprised of people with an intricate knowledge of their area enables a greater challenge to the business, thus reducing the likelihood of risks materialising. On the other hand, some firms favoured an operational risk team that largely consisted of generalist profiles. They argued that having a holistic knowledge of the firm’s risk portfolio enables them to challenge their operational risk framework as a whole, which builds the strongest base for effective operational risk management.
No single approach works for every firm. Firms should reflect on their own organisation and determine where specialist skills are needed, and how partnerships with other areas of the business might present an opportunity to leverage insight. Some risk categories may require a greater level of specialist knowledge than others. For some evolving risks, it can be challenging to procure the level of preferred expertise as resource in the industry can be limited. Firms should also consider how to effectively equip generalists with the necessary skills to challenge first line teams – for example, through awareness programmes including shadowing and training.
Effective use of data
Another key topic focused on the effective use of data and how many participants recognised that currently data is not being fully utilised to facilitate risk management. Data often exists over multiple legacy systems that are difficult to extract data from and if managed, still need significant cleansing and manipulation which limits the ability to identify patterns and trends.
As a result of these ongoing data challenges, firms are now adopting a number of strategies to improve their data and reporting capabilities. This includes firms hiring resources to focus specifically on data quality and/or data analysis. Firms are also investing in technology to:
1) streamline systems across the firm
2) implement a common operational risk data set across all three lines of defence
3) adopt Robotic Process Automation (RPA) to streamline the process of regular Management Information (MI) reporting.
Firms should consider what data they are currently collating, whether that data is fit for purpose, and if it accurately and clearly portrays the entirety of the risk landscape. Once reporting requirements are gathered, the means to acquiring data efficiently and being able to report on it clearly can be considered and adopted – whether that is by dedicated hires, technology upgrades and/or overall process improvement.
In our next blog, we will explore some of the discussions around revamping the risk taxonomy and engaging the business in the Risk and Control Self Assessment (RCSA) process. In the meantime, if you would like to read more about the results from our operational risk survey, you can find the report here.
If you are interested in benchmarking your firm’s operational risk maturity against our dataset or for any wider discussions around Operational Risk, please contact OpRisk@baringa.com. Please also get in touch if you would like to hear about future operational risk events held by Baringa Partners.