RISK IN CONTEMPORARY BANKING

In future, we expect this decade to be remembered as a period of metamorphosis for the banking industry.

By the mid 2020s, a different industry should have emerged. We will look back on a sector forced to change by disruptive forces—from regulations to technological breakthroughs—that reshaped society and business. History will show how new approaches to data, the workforce, business relationships and customers consigned time‑worn business models to obsolescence.

Change is the only thing that is guaranteed for risk professionals in banking. Much has been achieved since the financial crisis, but they cannot rest, because so much more is required. An innovative mindset should become their default stance. Banks need to be bold in moving from pockets of experimentation—in cloud, analytics, automation and artificial intelligence (AI)— to a core, proactive strategy that serves the overall development of their risk capabilities.

There are new competitors—non-banks, technology firms and fintechs—and new risks to manage, particularly non‑financial risks (e.g. conduct risk, strategic risk and reputational risk) and emerging risks (e.g. model risk, cyber risk and contagion risk). At the same time, the risk function, like the rest of the bank, is expected to drive efficiency and make considered investment choices in people, technology and partnerships.

Banks find themselves having to take swift but deliberate steps to survive, and thrive, in this and future decades. In 2017, banks are responding to the forces of change by taking a more fluid, progressive approach to risk management. Our research finds companies investing to strengthen their risk functions across three key areas: In this report, we look at progress among banks in making these changes, and highlight what they need to do in order to pivot to a new paradigm.