RSS FeedBy M. Isi Eromosele
Global financial institutions view regulatory compliance and risk management as unnecessary expenses. As such, they often take on a method of meeting the minimum requirement stipulated under the law. This is a serious miscalculation. Rather, financial institutions should strive to make enterprise risk management a source for achieving competitive business advantage. To attain this, the institutions would need to continuously assess their business processes. By making these processes more well-organized and effective, these organizations would enhance their capability to implement strategies that would increase shareholder value.
In meeting the demands that regulatory and risk management rules require, a strategic approach is needed that balances conformance with performance. Done appropriately, this would engender the attainment of short-term and long-term business benefits for these institutions. A Capability Model, which would include people, processes and systems, is the centerpiece to achieving these benefits. Inherently, a flexible and adaptable framework would be formulated to incorporate disjointed systems, weaving end-to-end processes into a seamless one, enabling company-wide strategies to be implemented with greater efficiency.
Regulatory compliance has always been a thorn on the side of financial institutions. These regulations have become more complex, with non-compliance resulting in financial and criminal penalties. As such, it is imperative for the top management at financial institutions to realize that their firms’ reputation and value is closely aligned to their compliance with these regulations. Because of lax compliance, many institutions have had to conduct restatement of financial results, which can lead to lost value.
The stakes have been raised with the promulgation of new regulations and financial executives are aware of serious consequences related to illegal and unethical business conduct. It is vital that these top executives strive to set up compliance objectives within their institutions backed up with strict written policies. An appropriate tone and culture should be encouraged within each financial firm which would ensure that all employees understand the importance of compliance with financial and risk management regulations.
Banking
The assessment and identification of risks have been a long term activity within global banks. However, they are facing increased challenges, including that of aggregating these risks. Risk is not uniform among the multiple units in a bank. The risks present in retail banking are different from that inherent in investment banking. These necessitate the implementation of a flexible enterprise wide risk management system that could meet the requirement of each financial sector unit while meeting the needs of the entire institution.
The global banking environment is a dynamic one where business processes constantly change. With this in mind, institutions have to set up systems that will enable them to constantly monitor, measure and manage these processes. There will be no more instances of business units dealing with compliance in isolation. This type of decentralized compliance model added complexity to meeting compliance requirements and wasted resources through excessive duplications. With disparate systems that did not communicate with each other, banks could not obtain reliable and properly merged information that identified where risks are present across the organization.
Financial institutions, including banks need to adopt a centralized compliance and risk management system that is more flexible, adaptable and efficient in enabling them to comply with present and future regulations. This would be more cost effective because key components can be reused across the enterprise.
M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance
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