RSS FeedBy M. Isi Eromosele
In global finance, compliance and risk management is always in constant fluctuation. As such, risk managers need to understand current risks as well as developing ones. One of the key challenges for risk managers is developing the ability to define the full extent of the risks that their respective organizations face and how they should manage these risks.
A new approach to risk management is clearly needed that brings compliance and other risks into a structure that enables upper management at financial firms to measure, prioritize and manage them effectively and efficiently. Such an approach requires that the full spectrum of risks within the institution be taken into consideration.
In order to be most effective and successful, defining compliance and risk management must be done through an enterprise-wide approach. As of now, risk management in many financial firms is till a work on development. Only 40 per cent of financial firms have established concrete risk management programs. Many have considerable work to do in reaching Basel II standards. Even more telling, only 25 per cent have capable operational risk management systems in place to report and gather data.
An enterprise-wide approach to risk management does pay dividends. During periods of market instability, financial firms that had established enterprise-wide management systems outperformed those without one. Given the recent global financial recession, financial institutions are under increasing pressure to exponentially improve their compliance and risk management abilities.
Compliance
A narrow definition of compliance management would be compliance with all rules and codes of Basel II or the Bank Secrecy Act. Conversely, a broader definition would include compliance with all external and internal regulations and requirements. It might also include separation of roles and responsibilities concerning banks systems, encompassing operations and technologies.
A typical structure for risk management in a financial institution would include a single risk manager, the Chief Risk Officer and each division over which compliance risk management extends would have their own respective managers. This traditional approach often results in a fragmented process that usually leads to considerable gaps in the compliance and risk management performance.
Risk Management
Risk Management has undergone profound change within the past decade because of the following drivers:
- Extraordinary growth in the number and complexity of risks
- Continued consolidation and diversification of banking institutions
- Continued globalization of the industry
- Greater scrutiny by government regulators
- Heightened business unpredictability with systems repercussions
The above factors make the identification and measurement of risks more difficult within the global financial industry. Meanwhile, they accelerate the exposure and effects of unforeseen developments on financial institutions.
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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