Accenture 2015 Global Risk Management Study: Banking Report Key Findings and Insights

2015 GlobalRisk Management StudyIndustry: Banking

22Copyright © 2015 Accenture All rights reserved.

Key findings

Key challenges Signs of growth

5 key priorities

Risk Management in the Banking Sector

Bank respondents to the Accenture 2015 Global Risk Management Study face 3 key challenges:

1 2 3Tougheconomic climate

Demandingregulations

Competition fromdigital innovators

41%

79%14%

of respondent banks have higher risk appetites for new product development.

think risk functions play a critical/important role in enabling growth.

say they have achieved fully risk-based decision-making.

1 2

3 4

New relationshipsRisk management as an enabler to the business.

22%of bank respondents say risk and finance work on corporate strategy.

21%say the CRO has very frequent dealings with the CIO and CTO.

Talent gapsThe war for specialized risk talent to intensify.

83%of banking respondents to grow investment in risk management capabilities.

37%say understanding cyber risk is a capability that will be most in demand in their risk function.

Operational risksDriven by changes in the commercial landscape.

65%of respondents expect cyber risk to become more severe.

59%see strategic risks increasing.

Robust risk cultureRespondent banks struggling to embed enterprise-wide.

11%say they have a consistentrisk culture.

37%believe human nature is stopping this from happening.

5Data and analyticsLow usage among surveyed banks.

9% say risk analytics is integrated with strategic decision-making.

22% expect this integrationto occur in two years’ time.

75% have used analytics to address business and market risks.

For more information, please visit: www.accenture.com/riskstudy2015 Source: Accenture 2015 Global Risk Management Study – Banking respondents

© 2015 Accenture. All rights reserved.

http://www.accenture.com/riskstudy2015

61%of risk masters believe their risk function can play a critical role in enabling profitable growth.

54%of risk masters believe they can help enable this growth “to a great extent”.

35%of non-masters reportthe same view.

Around 1 in 10 respondents to the Accenture 2015 Global Risk Management Study are “risk masters”.

10%

61%of risk masters agree strongly that emerging risks, such as cyber and digital, are consuming a greater proportion of the CRO’s time.

35%of non-risk masters feel stronglyabout this.

61%of risk masters agree strongly that they employ dedicated technology specialists to help manage digital risk.

27%of non-masters feel the same.

Stronger focus on profitable growth

Stronger focus on emerging risks Growing digital experience

For more information, please visit: www.accenture.com/riskstudy2015 Source: Accenture 2015 Global Risk Management Study – all respondents

What makes a risk master?

© 2015 Accenture. All rights reserved.

Better handle on regulatory and compliance

More extensive use of analytics

37%of risk masters believe strongly that regulatory change is receding in relation to other requirements.

25%of non-risk masters see regulatory change receding in the same way.

36%of non-masters feel the same.

More risk masters make extensive use of analytics to manage key risk categories including fraud and financial crime, cyber and IT risk, and credit, market and regulatory risks.

Risk masters are also more likely to be investing heavily in digital technologies.



Contents


Contents

A Our methodology

B Understanding the evolving environmentand context for risk management

1. Build relationships between risk management and other areas of the bank

2. Invest in talent

3. Manage operational risks effectively

4. Cultivate a consistent, resilient and integrated risk culture

5. Accelerate adoption of analytics

C Bridging the gap


Our methodology

7

Copyright © 2015 Accenture All rights reserved. 8

4th iteration of our Global Risk Management Study (2009, 2011, 2013)

2015 Global Risk Management Study: Paths to Prosperity

For the 2015 study, we surveyed470 CFOs, CROs, CEOs, CCOs and CDOs involved in theirorganization’s risk decisions

Our respondents came from North America, Europe and the AsiaPacific regions

The survey focused on threeindustry sectors: Banking, Insurance,Capital Markets

In addition to the survey we conducted 50 qualitative client interviews

Introduction


2015: Paths to Prosperity

9

Risk management continues to make a crucial shift but choices need to be made.

Seen as a collaborative partner to enable business goals instead of a controlling function to be circumnavigated.

Source: Accenture 2015 Global Risk Management Study – Banking respondents. Access at: http://www.accenture.com/riskstudy2015


We surveyed 470 C-suite officers across geographies and 12 countries

Study demographics


Country Geography Regional target Respondents

Australia

Asia Pacific 150

30

China 30

Hong Kong 30

Japan 30

Singapore 30

UK

Europe 170

50

Germany 30

France 30

Spain 30

Italy 30

USA North America 150

100

Canada 50

Total 470 470

Company size Total

Between US$1bn and US$5bn 235

Revenues over US$5bn 235

Total 470

Respondent Total

Chief Risk Officer 141

Chief Executive Officer 78

Chief Financial Officer 147

Chief Compliance Officer 28

Chief Operations Officer 31

Chief Data Officer/CIO 45

Total 470

Sectors Sector count Asia Pacific Europe North America

Banking 150 50 50 50

Capital Markets 170 50 70 50

Insurance 150 50 50 50

Total 470 150 170 150


Understanding the evolving environment and context for risk management

11


Figure 1: Change in senior management’s appetite for risk

Section 1:The new environment and context for risk management


Key Findings and Challenges

• Banking respondents have the greatest risk appetite for new product development

• Also trending are greater risk appetite for growth and expansion showing higher trend in mergers and acquisitions, and joint venture risk appetite

• Higher risk appetite for digital transformation technologies

Actions to Consider

• Integrate risk fundamentals across major corporate initiatives

• Help strike the right balance between capital, risk and return by positioning risk as a value-adding discipline

• Expand the reach of risk and risk data utilization to now encompass sales and marketing

Greater risk appetite


Figure 2: Senior management’s approach to delivering regulatory changeprograms




• Overall, the position of risk management within surveyed banks is strengthening

• However, nearly two-thirds are primarily focused on regulatory compliance

• Currently, there is increasing interest in gaining better return from compliance activities

Actions to Consider

• Invest in the digital technologies that can help provide new opportunities for both basic compliance efficiencies, as well as the aspiration to go beyond compliance functions

• Leverage compliance data to help provide greater insight – via a virtuous cycle – improve or automate processes and free up time for strategic activities


Figure 3: How senior management goes beyond regulatory compliance




• Nearly 60% of banking respondents reported that senior management goes beyond regulatory compliance

• Of these respondents, most report that it is used to reorganize operating models to pursue strategic business imperatives

• Overall, risk management is growing in maturity

Actions to Consider

• Assess where the risk function can proactively use its influence in the business

• Focus development on “license to operate” issues, and shift attention away from purely standalone regulatory issues

• Topics may include geographic expansion, mergers and acquisitions, and new product development opportunities


Figure 4: Statement that best describes the stage of maturity of the bank’s risk-based decision-making




• Bank respondents showing a fairly defensive position as they continue to focus primarily on addressing regulatory risk rather than adopting risk-based decision-making

Actions to Consider

• Provide oversight across the business and “join the dots” between strategic plans from different parts of the organization

• Mirror the digital change impacts in the industry and encourage an agile risk function that can adapt to the pace of changes in the industry

9%

19%

22%

11%

20%

17%14%

22%

27%

39%

1 2 3 4 5

Risk management primarily focused on regulatory needs/ license to operate

Risk management mainly focused on regulatory needs/ license to operate, but some focus on broader strategic risks

Fully risk-based decision making with strategic risk management inputs for major decisions

Today Two years’ time


Bridging the gap

16

Copyright © 2015 Accenture All rights reserved.

To keep pace with industry challenges, urgent action across five key areas should be considered

Bridging the gap

17

Buildrelationships between risk managementand other areas ofthe bank

Investin talent

Manage operationalrisks effectively

Cultivate a consistent, resilient and integrated risk culture

Accelerate adoption of analytics

1 2 3 4 5


Figure 5a: Statement that best describes the stage of maturity of the bank’s risk and finance interactions

Priority 1: Build relationships between risk management and other areas of the bank



• Only a minority of banking respondents work closely with finance to develop risk models

• Similarly, only a minority of risk executives contribute to corporate strategy

• The largest gap between current and target behavior lies in collaboration on corporate strategy and Enterprise Risk Management steering activities

Actions to Consider

• Promote risk management as an enabler of business goals, while maintaining a degree of challenge between risk and other leaders

• Collaborate from onset on setting business objectives• Leverage the most frequent interaction in the

C-suite – with the CEO – to help integrate acrossthe bank


Finance and risk leaders do not jointly provide input into corporate strategy and ERM (Enterprise Risk Management) steering

Finance and risk leaders have a close working relationship, but do not jointly provide input into corporate strategy and ERM steering

Finance and risk leaders may at times be in opposition on some issues, but have a close working relationship with both providing input into corporate strategy and ERM steering


Figure 5b: The extent to which risk management has contributed to the organization achieving the following




• According to banking respondents, the largest gap in current/future collaboration between risk management and finance lies in coordinating the development and maintenance of risk and capital models

• Overall, there are aspirations for risk and finance to collaborate on models that drive day-to-day business decision making

Actions to Consider

• Start by assessing how day-to-day business decision making around risk and capital models can become a collaborative function

• Validate data and application of tools and processes across both risk and finance

• Identify the key differences in perspectives and reporting that drive decision making


Risk and capital models are developed largely independently within the risk and finance functions

Risk and finance coordinate closely on the development of risk and capital models, but the outputs of these models do not drive day-to-day business decisions

Risk and finance coordinate closely on the development and maintenance of riskand capital models, which are used to drive day-to-day business decision making


Figure 5b and 5c: The extent to which risk management has contributed to the organization achieving the following




• Overall, the integration of risk and finance data sources is in progress with additional organizational resources being considered

• However, this integration is expected to decline slightly in two years

• Large gap exists in current versus target use of integrated data sources and other common resources

Actions to Consider

• Create an objective to make interaction between risk and finance more seamless

• Prioritize speed and flexibility in the organization, driven by risk and finance working together dynamically

• Continue to look forward, to keep pace with the velocity of change; target strategic planning to support better decision making


Risk and finance data are maintained separately and other resources and capabilities (e.g. modeling, IT) are not used

Integration of risk and finance data sources is in progress, and other organization resources and capabilities are being considered

Risk and finance use integrated data sources, and other organization resources and capabilities are used to enhance efficiency

Risk and capital models are developed largely independently within the risk and finance functions

Risk and finance coordinate closely on the development of risk and capital models, but the outputs of these models do not drive day-to-day business decisions

Risk and finance coordinate closely on the development and maintenance of riskand capital models, which are used to drive day-to-day business decision making


Figure 6: The extent of the interaction between the CRO’s organization and other executives




• Of all the surveyed C-suite executives, the CRO is most likely to interact with the CEO and CSO

• Interactions with the CCO are also frequent• Board interaction ranks the highest in very frequent

interactions • Interactions with the CMO are among the least

frequent

Actions to Consider

• Continue to build on the progress of risk from a purely defensive role to a more collaborative business relationship role

• Look to build stronger relationships with the CMO and broader commercial functions

• Social media risk is a significant area of upcoming challenge where CROs need to work closely with the CMO

43%

25%

38%

20%

40%

24%

49%

25%

43%

28%

39%

21%

50%

25%

47%

37%

33%

24%

27%

47%

Very frequent Quite frequent


Figure 7: Rating the importance of the risk function as a means of achievingthe following

Priority 2: Invest in talent



• Top areas of importance among banking respondents include enabling long-term profitable growth and risk-adjusted performance management

• Compared to two years ago, the importance of managing liquidity, capital allocation and reputation management have all dropped

Actions to Consider

• Acknowledge that recruiting for skills that are broader than core risk management capabilities will be imperative and a challenge

• Consider core training and cross-training for innovation and creative skill sets for existing risk professionals

75%

73%

79%

65%

67%

73%

84%

75%

100%

73%

75%

75%

83%

78%

73%

75%

79%

79%

79%

71%

2015 2013


Figure 8: The extent to which risk management has contributed to the organization achieving the following




• According to banking respondents, risk has a more strategically important role to play in managing the increasing volatility of the economic and financial environment

• Risk plays a significant role in enabling long-term growth and improving capital allocation

• Most notable decline among respondents has been infusing a risk culture in the organization

Actions to Consider

• Tie together the skill sets required to execute in a greater risk agenda, within the context of a more integrated risk and finance relationship

• Look to build connectivity beyond the finance organization to work collaboratively to bridge the gaps in existing and target capabilities

• Maintain the high level of core risk skills to maintain current levels of contribution

84%

77%

83%

76%

81%

77%

95%

80%

84%

80%

73%

81%

86%

81%

78%

81%

81%

81%

83%

75%

2015 2013


Figure 9: Statement that best describes the stage of maturity of the bank’stalent management




• Internally, over a third of bank respondents say their risk teams have a lack of key skills, such as specialized modeling and emerging risks

• Only 13% say they have the internal resources, including specialty skills, but respondents hope to nearly double this in two years’ time

Actions to Consider

• Investment in understanding new technologies for risk functions may need external resources; technology advances may be at a faster pace than a bank’s ability to train its staff

• Understand the impact of unstructured data in new modeling and surveillance activities


The risk team has insufficient talent resources to carry out the functions it is asked to perform

The risk team lacks internal resources in some specialized areas (modeling, emerging risks)

The risk team has internal resources even in specialized areas (modeling, emerging risks)


Figure 10: The expected change to the total level of investment in risk management capabilities in the next two years




• Most bank respondents expect to increase their investment in risk capabilities between 0-20%

• Nearly a quarter of the banks surveyed expect a significant increase (>20%) in their total investment in risk management capabilities

Actions to Consider

• Target investments to match the areas of key concern: – Cyber risk– Emerging digital technologies– Analytics– Social media

13%

60%

51%

0%

14%

0%

0%

35%

3%

23%

2015 2013

Copyright © 2015 Accenture All rights reserved.

37%

33%

30%

29%

26%

25%

23%

19%

15%

13%

Figure 11: The skills and capabilities that will be most in demand by the risk management function


26



• According to bank respondents, understanding cyber risk and technology will be in most demand

• Data management is also a top sought after capability• While social media is a top concern, the skill set ranks

below general business knowledge

Actions to Consider

• Broadening the skillset of today’s risk function will mean competing with technology companies for a similar talent pool

• Generalists with a good overview of different risk topics should be given more consideration

• Consider developing talent by utilizing rotational roles and cross-skilling


Figure 12: The types of expertise recruited in the past two years, and skills to be recruited in the next two years




• Cyber risk specialists are in high demand among bank respondents. This will decrease as interest shifts to business analysts, security specialists and fraud experts

• Commercial skills are also high in demand now, in the form of business analysts, strategic planners and accountants

• Data scientists also show a spike in demand

Actions to Consider

• Increase the scope of the roles to integrate quantitative skills with general business skills and problem solving, so the risk organization can drive key discussions

• Understand that there will be a war for talent• Use retention and development as additional

approaches to staff the business for desired risk skill sets

29%

36%

29%

27%

33%

37%

47%

41%

37%

31%

35%47%

49%

33%

49%

28%

42%49%

50%

32%

40%53%

55%

39%

Past two years Next two years


Expected change in severity of the key risks facing the business

Priority 3:Manage operational risks effectively

28



• Banking respondent’s focus on growth priorities means considering different business models, for example:– Omni-channel banking– Digital businesses

• New business models and rewards means understanding and mitigating new risks– Cyber risk – almost two thirds of

respondents believe that this will become more severe

– Fraud

Actions to Consider

• Assess current IT platforms – are they flexible and agile enough to meet customer demands from new digital channels now, or as they evolve?

• Invest in IT infrastructure that can strengthen operational risk capabilities– Real-time indicators of limits, collateral

management – Dashboards, smart alerts– Security systems

• Align finance and risk functions to tackle operational risks in an integrated fashion, similar to how they collaborate on market and credit risk management

• Approach cyber risk with a holistic framework to eliminate historic silos of risk and IT security


Figure 13: Expected severity of the following risks facing the business over the next two years

Priority 3:Manage operational risks effectively



• According to banking respondents, cyber and IT risks top the list of risks facing their business over the next two years

• Fraud also ranks highly• Traditional risks, such as credit, strategic, liquidity,

regulatory, business and legal still maintain high severity levels

Actions to Consider

• Work collaboratively to eliminate traditional silos, such as risk and IT security, to combat cyber and IT risks effectively

• Use new digital tools to both monitor and measure the parameters of fraud risk

• Take a holistic approach to traditional risks and use tools to help gain an enterprise wide view of risks from innovative new products

65%

62%

61%

59%

57%

57%

56%

56%

56%

55%

53%

52%

52%

50%

47%

42%

Increase


Figure 14: Statement that best describes the stage of maturity of the bank’srisk culture

Priority 4: Cultivate a consistent, resilient and integrated risk culture

30



• Risk culture maturity remains an area open to improvement according to bank respondents

• Most have made some improvements, but nearly 40% of respondents face issues in successful implementation

• Only 11% of respondents have reached a strong level of maturity, with over a quarter aspiring to the highest level in two years

Actions to Consider

• Challenges will arise in new business models, such as digital, omni-channel. Clear policies and procedures should be consistent across existing businesses

• Rely on the principles of the “three lines of defense” model and apply them contextually with risk oversight, risk information and related flows of information


We are at the early stages of developing and implementing a risk culture

We have made improvements in embedding our risk culture, but we still have work to do and face barriers to its full implementation

We have a strong and consistent risk culture that is understood and implemented across the entire organization


Figure 15: The main obstacles to embedding a consistent, organization-widerisk culture

Priority 4: Cultivate a consistent, resilient and integrated risk culture

31



• Complex human nature, coupled with challenges overcoming preconceptions and various departmental silos are the biggest obstacles in implementing a single risk culture according to banking respondents

Actions to Consider

• Reach across the business with leadership from the risk function in training

• Measure risk culture and the degree that it is embedded throughout the bank by looking at key metrics – then align employee incentives to metrics. Report results to board level

• Rethink organizational structure; benefits of centralized versus embedded


Figure 16: Risk management’s use of data and analytics in addressing the following types of risk

Priority 5: Accelerate adoption of analytics



• Cyber/IT risk and operational risks top extensive use of data and analytics

• Moderate users of data and analytics include business risks, IT selection, regulatory risks, liquidity risks and market risks

• A minority of respondents see themselves as extensive users of data and analytics, but as a group, aspire to progress significantly

Actions to Consider

• Increase scope of data and analytics drive insight across the organization, beyond the traditional strength areas

• Leverage information used in managing cyber/IT risk and operational risk data to inform IT investment needs and data management strategies to be leading users of the anticipated adoption curve

36%

24%41%

30%

21%42%

32%38%

26%43%

29%42%

45%25%

27%43%

39%33%

27%45%

27%48%

16%46%

21%40%

24%35%

20%39%

29%29%

44%31%

Extensive Moderate


Figure 17: Statements that best describe the stage of maturity of thebank’s risk analytics




• 30% of respondents say senior management is a passive user of risk analytics

• Nearly 40% of respondents say that risk analytics is applied at least partly across the organization

• Overall, 38% of respondents report that data and risk analytics is integrated into everyday operations of the risk function

Actions to Consider

• Opportunities to improve exist in both the risk function and at senior management levels

• Senior management can improve their proactivity in using risk analytics to inform business decisions

• Risk functions can elevate the use of data and risk analytics beyond everyday use to strategic, high-level decision making

Now Two years’ time


Figure 18: Rating risk management’s level of expertise to influence strategy and major decisions in the following areas




• Information/network security, big data and analytics, are major areas of substantial functional expertise for bank respondents

• Technology strategy is an important and significant capability to influence strategy and decision making

• Cloud computing, mobility are also areas for significant expertise

Actions to Consider

• Win the war for talent by recruiting and developing skillsets in math, analytics and decision science

• Big data-driven analytics can make improvements in decision making – if aligned with and tied to corporate- level strategies

• Use “test and learn” innovation processes to explore new ideas at high velocity

24%4%

30%41%

19%6%

30%45%

18%4%

30%48%

11%1%

36%51%

15%0%

41%43%

21%2%

28%49%

High Moderate Low Non-existent

35Copyright © 2015 Accenture All rights reserved. 35

To learn more about the study and to obtain your copy of the Banking Report please go to: www.accenture.com/banking-riskstudy2015


http://www.accenture.com/banking-riskstudy2015?c=glb_accglbsldshr_10000007&n=smc_0515

http://www.accenture.com/banking-riskstudy2015?c=glb_accglbsldshr_10000007&n=smc_0515


An evolving landscape

36

2005

2015

VS

Decisions informed by past events

Risk only outlook

Focused on credit, market and operational risk

Narrow definition of operational risk

Clear demarcation between three lines of defense

“Left brain” – quantitative; analytical approach

Prioritized control and prevention

Tactical attitude: centered on day-to-day risks

Spreadsheet-based management

Digital? What’s digital?

Looking forward, with “next day” thinking

Recognizing risk AND inherent opportunity

Aware of a growing range of emerging risks

More comprehensive definition of operational risk

Three lines of defense, with fluid interaction embedded in the business

“Left AND right brain” – creative, innovative understanding

A balance of control, prevention, and enablement

Strategic awareness: focused on long-term business challenges

Increasingly integrated data sources

Emphasis on digital risks and opportunities

The Risk Landscape

Risk management in 2025Analytics now permeates decision

makingCompanies are exploring robotics and artificial intelligence to manage transactional risks

Behavior prediction helps to effectively inform risk management

Rise of the Chief Risk and Return Officer

Risk management is the career path to the C-suite

Single data source drives reporting and analytics activities

For more information, please visit: www.accenture.com/riskstudy2015 © 2015 Accenture. All rights reserved.


Disclaimer:

This presentation is intended for general informational purposes only and does not take into account the reader’s specific circumstances, and may not reflect the most current developments. Accenture disclaims, to the fullest extent permitted by applicable law, any and all liability for the accuracy and completeness of the information in this presentation and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, audit, or tax advice. Readers are responsible for obtaining such advice from their own legal counsel or other licensed professionals.

About Accenture

Accenture is a global management consulting, technology services and outsourcing company, with more than 323,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$30.0 billion for the fiscal year ended Aug. 31, 2014. Its home page is www.accenture.com.

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2015 Global Risk Management StudyIndustry: Banking


Accenture 2015 Global Risk Management Study: Banking Report Key Findings and Insights

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