Navigating volatility with effective Risk Management
Financial services companies operate in environments with inherent risks including market volatility, credit risk, liquidity risk and operational disruptions. A robust risk function helps identify, assess and mitigate these risks, ensuring the company’s financial stability and resilience to adverse events. The industry is heavily regulated to protect investors, consumers and the stability of the financial system.
A strong risk function ensures adherence to the regulatory requirements, reducing the risk of fines, penalties and reputational damage associated with non-compliance.
However, establishing a robust risk function is not always a simple task.
Financial service companies encounter numerous challenges in their efforts to establish an efficient and effective risk management framework. Based on our market experience, the main challenges are:
Establishing a risk-aware culture throughout the organisation and achieving widespread understanding and buy-in for risk management practices among employees and stakeholders.
Siloed organisational structures that can impede the integration of risk management practices across different functions and departments.
Having to navigate a complex landscape of regulatory requirements and compliance obligations that continue to evolve over time.
Navigating a dynamic and uncertain risk landscape characterised by emerging risks such as cyber threats, geopolitical instability and technological disruptions.
Aligning risk management activities with the organisation’s strategic objectives and business priorities, particularly when there are competing demands for resources and attention.
Implementing changes to the risk framework, processes or technology infrastructure, which can encounter resistance from stakeholders accustomed to existing practices.
Evaluating the effectiveness and performance of the risk framework, as traditional metrics may not adequately capture the value delivered by risk management activities.
Establishing a successful Risk function
We have helped clients throughout the industry recognise and negotiate these challenges and set up their risk function for long-term success. Addressing them requires a collaborative effort from organisational leadership, risk management professionals and other stakeholders to build a resilient and adaptable risk framework that can effectively navigate the complexities and uncertainties of the business environment.
Here are some crucial good-practice efforts that can lead your Risk function strategy towards success:
- Cultivating a risk-aware culture by encouraging open communication and transparency about risks at all levels of the organisation, as well as providing comprehensive training and education in risk management practices.
- Fostering cross-functional collaboration and communication to facilitate the integration of risk management practices, including establishing clear roles, responsibilities and accountabilities.
- Staying abreast of regulatory developments and proactively adapting risk management practices to comply with evolving requirements.
- Conducting regular assessments to identify and evaluate emerging risks such as cyber threats and geopolitical instability.
- Implementing effective change management strategies, including communication, training and stakeholder engagement – essential for the successful implementation of a robust risk framework.
- Developing meaningful key risk indicators (KRIs), key performance indicators (KPIs) and risk appetite metrics – essential for monitoring and improving the performance of the risk management framework over time.
Your path towards effective Risk Management
We at PwC can help you identify weaknesses, gaps, inefficiencies and improvement points in your risk management framework through our External Quality Assessments (EQAs). EQAs provide an objective assessment of the risk management framework, free from internal biases or conflicts of interest. This independent validation helps companies identify blind spots and areas for improvement that may not have been apparent through internal evaluations alone.
Do you want to learn more about our EQAs and get insights into market and industry trends? Interested in finding out about key aspects of good practice risk functions and peer comparison? Get in contact with us to learn more about the topic and how it could help your risk function prepare for long-lasting success.
Stay tuned for further posts in this blog series where we delve into various important topics within the risk management function and framework.
Contact us
Partner, Leader Financial Services Risk Consulting & Internal Audit, PwC Switzerland
+41 58 792 46 28
Mansur Jakob