Few join risk management and strategy

Aligning operational risk management with strategy is critical for banks to effectively identify, assess, and mitigate risks. But many institutions have yet to accomplish this alignment, according to a new survey report released by KPMG LLP and The Risk Management Association.

Only 17% of the survey’s Basel Advanced Measurement Approach (AMA) respondents, which span North America, the Middle East, Africa, and the Asia-Pacific region, said that their firms fully align operational risk management with strategy.

The trend was slightly higher at North American institutions, with 19% achieving full alignment of risk management with strategy.

Overall, the organizations noted, the survey results bring into question whether operational risk is fully considered when financial institutions implement significant strategic change.

“Integration of operational risk management across the organization, coupled with the collection and analysis of robust risk data, is an essential component to a financial institution’s successful business strategy and regulatory compliance efforts,” says Tim Phelps, U.S. operations risk network leader at KPMG LLP.

Phelps added that banks must continue to evolve their operational risk management efforts due to heightened regulatory expectations and a focus on enhanced prudential standards for “strong” risk management.

Financial institutions are beginning to address the issue by restructuring their operational risk management frameworks to help ensure compliance with heightened regulatory expectations and to drive greater strategic value. However, much remains to be done, as only 13% of North American financial institutions surveyed have completed resetting their ORM framework.

Additional findings:

• Consistency lacking. Only 38% of advanced approach respondents in North America said they have established a consistent risk control self-assessment approach for multiple risk assessment types.

These would include operational risk management, compliance, business continuity planning, vendor, and information technology security. As these efforts continue to progress, firms can expect enhanced risk management effectiveness, integration, and efficiency.

• U.S. slightly ahead in dashboards. 77% of North American advanced approach respondents said their operational risk management reporting dashboards are supported by robust and integrated data and metrics, edging out the 70% of respondents at AMA firms worldwide.

The quality of data collected is critical in financial institutions’ efforts to improve their risk intelligence.