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

2015 Global Risk Management StudyIndustry: North America Banking

2Copyright © 2015 Accenture All rights reserved.

Key findings

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

34%of NA bank respondents are open to greater digital risk – less than the global average.

62%expect cyber risk to increase. 44%

of NA bank respondents believe risk is already a significant facilitator of long-term profitable growth (28% for all surveyed banks**).

66%think risk will be critical or important to innovation andproduct development.

Key challenges

North American (NA) banking respondents to the Accenture 2015 Global Risk Management Study* face 3 key challenges:

1Regulatory fall-out of systemic collapse

2Tough economic headwinds

3New entrants from technology sector

30%of NA bank respondents see very frequent interaction between the CRO and board.

12%think risk function interacts very frequently with the CIO.

62%of surveyed NA banks think cyber and IT risks willbecome more severe.

78%say emerging digital risks are taking up more and more of the CRO’s time and energy.

30%of NA banks surveyed make extensive use of analytics to manage credit risks.

26%use analytics extensivelyfor operational risks. 26%

of NA banks surveyedhave extensive digitaltechnology knowledge. 42%

have recruited data analysts and scientists (49% for all surveyed banks**).

Risk management supporting growthApproach to digital

Risk’s influence remains limited in places Emerging operational risks

Underutilized analytics Digital talent

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

Risk management in North American banking

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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 establish this growth “to a great extent”.

35%of non-masters report the 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: http://www.accenture.com/riskstudy2015Source: Accenture 2015 Global Risk Management Study – all respondents

What makes a risk master?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.

4© 2015 Accenture. All rights reserved.


Copyright © 2015 Accenture All rights reserved.

Contents

5



Contents

A Our methodology

B Paths to prosperity: Choose risk and return

C An evolving landscape


Our methodology

7



Introduction4th iteration of our Global Risk Management Study (2009, 2011, 2013)

2015 Global Risk Management Study: Paths to Prosperity

For the 2015 study, we surveyed 470 CFOs, CROs, CEOs, CCOs and CDOs involved in their organization’s risk decisions

Respondents came from North America, Europe and the Asia Pacific regions

Survey focused on three industry sectors: Banking, Insurance and Capital Markets

This sector report presents the insights and perspectives of 50 North American respondents

8

2015: Choose Risk and Return


Risk management plays a critical role in innovation and product development and is a significant supporter of long-term profitable growth.

A collaborative partner, risk management is a key partner in facilitating digital transformation.

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



Study demographics

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

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


Paths to prosperity: Choose risk and return

11


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Seeking profitable growth in a challenging environmentLooking for a roadmap through the backdrop of a cloudy outlook

Current Challenges

• US banking sector yield disappointing results, despite recovering US economy and stronger balance sheets

• Current environment includes regulatory fines, low interest rates, rising costs in risk and compliance operations, and capital constraints due to regulatory requirements

• Canadian banks are rated soundest in the world, yet face a threats from benign economic conditions such as low commodity prices and the potential for higher interest rates

Future Issues

Banks are encouraged to:• Explore new ways to increase

efficiency and productivity to support sustainable and profitable growth

• Embrace innovation, especially with regard to new digital technologies as well as digitally-enabled business models

• Reposition risk management to play a proactive role in generating efficiency and growth, instead of just firefighting macro economic contingencies



Risk appetite returning in a targeted wayFigure 1: Senior Management’s appetite for risk

Actions to Consider

• Position risk management as a strategic partner to help answer “how” not “yes/no”

• Seize the relatively narrow window of opportunity to develop digital offerings, or risk losing to non-traditional competitors

• Encouraged to up the pace of innovation in digitally-enabled products and services

Key Findings and Challenges

• North American (NA) banks, active in seeking new growth opportunities, but at a slow pace

• Comparatively, NA banks have slightly stronger appetite for new product development, M&A, and business model change

• Surprisingly, NA banks have a smaller appetite for digital initiatives and geographic expansion



Digital, a key channel to help drive growth for NA banksLooking for a roadmap through the backdrop of a cloudy outlook, digital could offer benefits on both sides of the profit equation

Digital for Growth

• Guards against competition: Technology-powered, non-traditional banking companies target disruption and disintermediation of traditional banking business models (e.g., Lending Club Corp – a P2P lending platform)

• Focuses on the customer: Omni-channel approaches to banking with highly responsive, seamless interaction across branch, online and mobile

• Becomes center of the digital ecosystem: Provides bridges to other online services and serves as a digital hub

• Lowers cost to serve customers: Transaction costs in digital channel may be less than in a physical branch

• Leverages regulatory resources: Manages staff costs assigned to responding to regulatory requirements amid a tight market for risk talent

Digital for Efficiency

• Competition is fierce, the pace of innovation is rapid

• Overwhelming percentage (72%) of 18-34 age segment say they will look to non-banks to fulfill their banking needs*

Burning Platform

* The Everyday Bank: A New Vision for the Digital Age,” Accenture, June 2014. Access at: http://www.accenture.com/us-en/Pages/insight-everyday-banknew- vision-digital-age-banking.aspx



Digital transformation as the cornerstone of profitable growthFigure 2: Rating the importance of the risk function as a means of achieving the following


• Compared to peers in other regions, NA banks’ risk functions are relied upon to help manage liquidity/cash flow and support profitable growth

• Looked to help navigate volatile economic and financial environments, while simultaneously reducing the cost of capital

Actions to Consider

• Digital transformation could help reduce cost to serve, with new products as well as migration from costly agents to less expensive digital channels

• Digital could help strengthen risk management by providing data in near real-time to support better decision making

%



Risk management as a key partner in facilitating digital transformationFigure 3: Interaction between the organization’s CRO and the following key executives


• Compared to peers in other regions, NA banks’ CROs have greater interaction with the Board, CFO and CMO

• However, NA banks’ CROs lag in frequent interactions with CCOs, business unit heads and most notably, the technology organization (CSO, CIO, CTO)

Actions to Consider

• Continue to articulate the value of risk to the overall business and build closer relationships with all C-suite executives

• Expand the current set of risk responsibilities to help meet regulatory and operational demands

• Position risk function to help control risks associated with growth plans

%



The shift to digital introduces new risks to operationsFigure 4: Expected change in severity of risks facing the business over the next two years


• Compared to peers in other regions, NA banks are more concerned about the severity of credit, strategic, regulatory and market risks

• Notably, cyber, liquidity and fraud risks do not register as severe a concern among NA banks

• However, new exposures could come from mobile and online channels and operations

Actions to Consider

• Assess the security of operations against the backdrop of a quickly widening ecosystem

• Create a risk culture that is appropriate and robust enough for mobile and online channel operations support teams

• Rapidly develop procedures and policies to help manage emerging operational risks



Analytics, a powerful tool to help enhance the customer experienceFigure 5: Risk management’s use of data and analytics in addressing the following types of risk.


• NA banks tend to use analytics in targeted areas and functions, such as assessing business risks, government fiscal crises, cyber and IT risks, and strategic risks

• Compared to the rest of the world, NA banks rely less on analytics to manage credit and operational risks

Actions to Consider

• Use analytics with greater applicability in both a forward looking view of risk

• Leverage analytics to enhance customer offerings, such as more rapid decisions on loan services

• Harness the power of analytics with investments in big data, other digital tools

%



The transition to digital and the demand for new skills and capabilities in the risk functionFigure 6: Types of skills the bank recruited in the past two years


• Compared to peers, recruitment has been slower for many NA banks

• As a result, NA banks have recruited less key skills in nearly every area – the exception being Accountants

• This lag is expected to continue in the next two years

Actions to Consider

• To keep pace with the innovation and growth of global peers, NA banks should increase investment in risk professionals

• Invest in training and recruit new risk professionals to support digital innovation, and increase the risk function’s involvement in broader strategic discussions

%



Conclusion: At a crossroads

Rise to the Digital

Challenge

• For innovation and growth

• For operational efficiency and resilience

For Canada For United States

• Leverage current resiliency and strength of banking sector to innovate

• Consumer trends are not developing as rapidly as US

• Build on importance of banking sector with US’s relative economic strength to grow

• Expand products and services to meet the requirements of demanding consumers


An evolving landscape

21


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.


http://www.accenture.com/riskstudy2015

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


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

http://www.accenture.com/banking-north-america-riskstudy2015?c=glb_accglbsldshr_10000009&n=smc_0515

http://www.accenture.com/banking-north-america-riskstudy2015?c=glb_accglbsldshr_10000009&n=smc_0515


2015 Global Risk Management StudyIndustry: North America Banking

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

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