The risk management function of the future

What bankers are doing today to prepare for tomorrow

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Businessman looking at smart watchFrom Dodd-Frank to the formation of the Consumer Financial Protection Bureau to the evolving Basel Accords, banks have faced a tsunami of new regulatory pressure since the financial crisis of 2007-2008. Yet, under the Trump administration and new Congress, regulatory pressures may ease.

During this time of increased pressure and new uncertainty, MIT's Golub Center for Finance and Policy and Grant Thornton interviewed bankers, former regulators, and researchers in academia and think tanks to learn more about banks' evolving approach to managing risk.

Some key findings:
  • Regulatory compliance remains a driving force in risk management, however opinions among bankers, former regulators and other surveyed vary regarding the relative cost and effectiveness of differing regulatory initiatives.
  • Banks, especially larger banks, are increasingly utilizing risk management functions to improve and protect profitability by, for example, leveraging information gathered through regulatory compliance to improve business decision making and to supplement fintech capabilities.
  • Risk management functions are evolving to exploit emerging technologies and cover a broader range of risks. Banks look to boost the efficiency of their risk management through right-sourcing and automation, and to exploit technologies such as blockchain to reduce operational risks. Risk management functions are assimilating new nonfinancial and operational risks, such as cybersecurity, digital and vendor risk.
  • Risk management is becoming more prominent in bank culture, with chief risk officers (CROs) playing a more strategic role and with a general trend to upstream risk activities to improve performance and strengthen risk culture.

Read the full executive summary here.
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