What are banking risk leaders’ top concerns? Accenture’s 2019 Global Risk Management Study found a mix of old and new headaches that include financial crime, credit risk, cyber threats and evolving regulations.
While some are familiar threats, all are transforming into more worrisome concerns as the banking ecosystem itself undergoes dramatic change. To prosper banks are encouraged to identify actions they can take—and prioritize assets to protect—to establish their sphere of control.
Let’s take a closer look the top concerns posing a threat to today’s banks.
Financial crime remains the top concern
Given the millions of dollars banks have invested in anti-money laundering (AML) and Know Your Customer (KYC) compliance, is it any surprise financial crime tops banking risk managers’ list of concerns?
Today’s financial crime is more complex and sophisticated, with bad actors actively seeking gaps in a bank’s increasingly extended ecosystem.
Banking risk managers may want to tap artificial intelligence (AI) and machine learning technologies to detect and prevent financial crime. They may also want to try a new approach, such as a “hub and spoke” model, for better efficiency and fewer siloes.
A risk as old as banks themselves
Credit risk is a timeless concern for banking risk managers. Today, it is banks’ second-greatest challenge: Global debt is currently at its second-highest dollar level on record.3 Only 13 percent of banking risk managers feel highly confident in their ability to manage this risk.
Automation and smart technologies offer one option for managing credit risk. AI can validate credit risk models—and even process credit decisions at point of sale.
Another option? Risk leaders can consider a wider swath of criteria for evaluating credit risk such as, for example, a company’s cyber vulnerabilities.
Ongoing compliance challenges
The regulatory environment is still a challenge and our study finds evolving regulation tied as banks’ third most pressing concern. The high cost of complying with privacy rules and increasingly proactive regulatory supervision are keeping compliance concerns top of mind.
Only one in 10 banks surveyed are highly confident in their ability to manage regulatory risk.
Banks can tackle compliance by clarifying responsibilities between the first and second lines of defense for designing and testing risk controls adopted in response to new regulation.
Banking risk managers also can investigate and deploy new tools and work processes to identify and then assess consequences related to regulatory chances.
Ever-present cyber threats
Tied with regulatory concerns are cyber threats—happening more often and with increasing sophistication. Cyber threats can’t be brushed aside, due to the potentially significant financial and reputational damage they can inflict on an organization.
New technologies, such as AI and machine learning, can help detect and classify malware or spot suspicious activity across the network.
Banks can also work to master the basics. That means training workers to spot malicious activity or categorizing the bank’s most important data and protecting it.
LIBOR is coming
Whether banks are ready or not, LIBOR is to retire in 2021. For many banks, the transition may not seem like a dramatic threat—but it cannot be ignored. In our view, the sheer effort required to update LIBOR provisions in contracts, or managing conduct risk, is a major undertaking that demands proactive risk management. Yet, banks are hesitant in their response.
Banking risk leaders should hesitate no longer. Rather than recalibrating risk models, risk leaders can collaborate with other business functions and identify the LIBOR retirement impact across the business.
Defining your sphere of control
Perhaps one of the most essential challenges facing banking risk managers is knowing what they can control and prioritizing what to protect. It is increasingly impossible for the function to protect everything, so a focus on preparation and planning—not prediction—is essential. That is how they can manage their sphere of control.
See the full report to learn more about next steps for banking risk managers.
1 “Anti-money laundering compliance costs U.S. financial services firms $25.3 billion per year, according to LexisNexis Risk Solutions,” Cision PR Newswire, October 10, 2018.
2 “Europe is losing the fight against dirty money,” Politico, April 5, 2018.
3 “Global Debt Quickened in First Quarter, Outpacing World Economy,” Bloomberg, July 15, 2019.
4 “2018 State of Cyber Resilience for Banking & Capital Markets,” Accenture 2018.