Applying a cohesive approach to non-financial risk management for financial institutions paid Deloitte
An effective NFR management program begins with a comprehensive approach to identify all the non-financial risks facing an organization, based on a detailed Risk Taxonomy and a holistic Risk Identification process.NFR management is more important than ever—amidst volatility in the business environment due to uneven economic growth, increased political and regulatory uncertainty, and varied returns on revenue and equity.
Conduct-related and inappropriate employee behavior has already lost the top 20 global banks an estimated $348 billion from 2012 – 2016.Regulators are focused on the importance of conduct and culture and scrutinized misaligned compensation incentives and lack of accountability. Similarly, losses from cyberattacks amounted to an estimated $445 billion across all industries in 2016, up 30 percent from three years before, with financial institutions being the prime targets of hackers.
A critical first step is to create an effective risk identification process that identifies all relevant NFRs. Institutions should begin with creating a comprehensive NFR taxonomy, which they can customize and evolve based on new insights as other risk events emerge in the future. Building a risk taxonomy prevents NFRs from being overlooked, provides a standardized language for all three lines of defense to employ across the institution, and establishes a foundation for a unified risk management approach. For this reason, all three lines of defense and senior management should be actively involved in developing the risk taxonomy in order to raise awareness of NFR across the organization.
. By adopting a taxonomy of all the types of NFR and applying a robust risk identification process, financial institutions will be able to successfully manage these emerging diverse and complex threats and safeguard their business for the future.The future of risk in financial services,
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