Report

Transforming strategic risk management to realize competitive advantage

How the role of the CRO is evolving to become more strategic and forward looking

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The old business order is breaking down, as new types of risk emerge, banks widen their customer services, and an explosion of data and technologies disrupt the status quo. The banking universe is rapidly changing, and in the last 10 years firms have materially improved their risk management practices, including governance and processes, such as planning, risk appetite, forecasting, and limit setting. Now, there is an urgent need to evolve their strategic risk management (SRM) capabilities to allow for better, faster forward-looking risk assessments, particularly given SRM’s direct impact on market competitiveness.

Genpact and the European Risk Management Council conducted a survey of more than 50 chief risk officers (CROs) at global financial services institutions. We examined how the risk function contributes to developing, evaluating and supporting the implementation of their business strategy. We explored three key areas: the current state of their risk framework; key challenges; and new technologies and applications.

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Transforming strategic risk management to realize competitive advantage

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The survey focused on the SRM framework, in which the risk function is represented by the CRO and factored into defining and operationalizing a bank’s business strategy. However, the rise of digital technology and its potentially radical impact on all bank operations dictate that the role of the CRO must evolve beyond its present one of consultant and subject matter expert to become more strategic and proactive.

In a digital world, what might the roles of the CRO and the risk function look like? We challenged ourselves to imagine what these could be, as aligned with the findings in the survey and the views expressed by the CROs we interviewed. In our vision:

  • SRM becomes the guiding light of the enterprise risk strategy 
  • The CRO becomes the watcher on the wall, detecting needs and anticipating the future
  • The risk function becomes the conduit for aligning business operations to business strategy
  • SRM becomes the hungry consumer of massive, disparate data to provide near-time risk advice using predictive tools

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In the four sections of this report prepared by Genpact, we discuss these views, with insights from the CROs interviewed, who are experiencing the evolution first hand. We conclude with next steps and three initiatives that can transform SRM.

Read on for the latest insights on strategic risk management.