Enterprise risk management takes a step forward with automation

Written by Mitch Lucas Head, Lending, Product Management & Compliance
Enterprise risk management takes a step forward with automation

This blog was originally posted on RMA.

Community banks and credit unions face a variety of risks in today’s market, from liability and vendor management, through auditing, strategic planning, and project management, to name a few. Traditionally, these risks have been handled individually, creating a siloed environment with little cross-firm visibility.

Enterprise risk management (ERM) is a more comprehensive approach to identifying and managing risk, where financial institutions view the organization as a whole. ERM allows the bank or credit union to view risk from a higher level and make connections that might otherwise be missed.

ERM, Taking the Higher View

Imagine that you are flying in a helicopter. From this vantage point, you can see multiple intersecting roadways on the land below and even identify when vehicles traveling in opposing directions may be in danger of crashing.

ERM strategies provide a similar view of a bank’s danger zones by sharing information across siloed risk management activities and providing a view of the organization’s risk. In the current regulatory environment, having an enterprise risk strategy is of increasing importance as regulators require stronger reporting and controls, even for smaller banks and credit unions.

“The whole concept of enterprise risk management continues to be pushed down to smaller and smaller institutions, and it certainly applies to anyone that’s crossed that $1 billion threshold,” said Charles Umberger, EVP and chief lending officer with Waynesville, N.C.-based Entegra Bank, in a quote to American Banker.

Beyond regulatory compliance, effective ERM strategies lead to informed operating decisions and stronger performance. For example, involving risk management in product and service development can help banks and credit unions avoid mispricing or inadvertent misconduct risks down the line.

In the current consumer-driven environment, where digital is key to sustainability and growth, ERM is also critical to guiding successful transformations. However, EY’s Ninth annual global bank risk management survey reports that only 20% of financial firms use input from risk management groups to guide their IT and digital strategies.

Across the board, too many financial institutions have not given enough consideration to risk management. KPMG reveals that 40% of large financial institutions are rated “less-than-satisfactory” for risk governance and controls.

For community banks and credit unions, the situation is even more complex because managing risk requires time and dedicated talent that smaller institutions may find challenging to access. For example, IBM found that 81% of data science and analytics jobs require three to five years of experience and remain open five days longer than other types of positions, as organizations seek qualified candidates.

Automation Is the Key to ERM in the Digital Age

Financial institutions have identified data as the lifeblood of an effective ERM strategy and are prioritizing investments accordingly. Ninety-three percent are focused on improving data quality and 74% have invested in automating processes to access and analyze the vast stores of information held in banking systems, according to the EY report.

A fully integrated enterprise risk and compliance management system such as Finastra’s Fusion Compliance Management breaks down informational silos and provides an enterprise view of the institution’s risk by providing a 360-degree view of the organization’s data from a single central vantage point. When data is visible from multiple business divisions and back-office teams, risk analysis is simplified, allowing ERM professionals to make more accurate decisions regarding a firm’s risk. ERM systems can make it easier to attract talented data science professionals as well, by providing them with the tools they need to be successful.

ERM is essential to protecting bank and credit union profitability and competitiveness as well as aiding in regulatory compliance. To identify and mitigate risks, community banks and credit unions should leverage technology to gain a unified view of the enterprise and improve reporting and decision making for stronger organizational results.

Finastra’s Fusion Compliance Management includes an effective Enterprise Risk Management program that allows you to create streamlined processes and workflows to mitigate risk across your entire organization. Click here to learn more.

Written by

Mitch Lucas

Head, Lending, Product Management & Compliance

As Head, Lending, Product Management & Compliance, Mitch is responsible for driving the direction and strategy of Finastra’s consumer lending and loan compliance solutions.

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