SAS study reveals how modernising and automating risk management frameworks delivers profound business benefits; industry “Leaders” chart the path forward, says Longitude
COVID-19’s disruption has stretched risk management infrastructures to the brink, forcing banks to recalibrate their data, models and processes for stress testing, impact assessments, scenario analyses and more. A global risk management survey by analytics leader SAS and Longitude examines how banks are adapting their risk frameworks in response. It reveals the “true north” nature of banks’ risk technology capabilities in navigating uncertainty – and how the Risk Management Leaders are seizing the competitive edge.
The study, From Crisis to Opportunity: Redefining Risk Management, is based on a survey of 300 senior banking executives across 24 countries. The survey data is complemented by insights from in-depth interviews with the chief risk officers (CROs) of five large, multinational banks, including Wells Fargo, Standard Chartered Bank, Société Générale and RHB Malaysia. Among the report’s key findings:
- COVID-19 is driving transformation. More influential than regulatory requirements, the top factor influencing banks’ approaches to risk modelling is the pandemic.
- Most banks plan to modernise. In the next two years, 54 per cent of banks anticipate modernising their risk modelling capabilities. Further, 52 per cent say the pandemic has accelerated their modernisation plans.
- Risk management automation is lagging. Only about 10 per cent of banks have completely automated most of their risk management activities – and a mere 6 per cent have fully automated large portions of the risk modelling processes – hindering their ability to forecast trends and improve decision making across the business.
- Cloud deployments and analytics are top investment priorities. Asked about planned investments for improving risk modelling over the next 12 months, executives put cloud provision (67 per cent) and data analytics tools (59 per cent) at the top of their list.
The study’s results were previewed at SAS Global Forum 2021. The session, entitled Spotlight on Risk, Fraud and Financial Crime: Challenges and Trends, is available to stream on demand through June 25 (registration required).
“The benefits [of automation] are immense. It is much more meaningful for us – not just in terms of delivering the Bank of England stress tests, but for managing our business,” said Mark Smith, Group Chief Risk Officer, Standard Chartered Bank.
Risk Management Leaders and the competitive advantage
Using the survey data, Longitude identified a subset of survey respondents, the 20 per cent who had a more mature approach to risk management versus the rest of the sample. These “Risk Management Leaders,” as they’re identified in the report, are defined by having more automated risk modelling and more advanced risk management capabilities via tools like scenario-based risk analytics, integrated balance sheet management and modelling-as-a-service.
The research shows the Risk Management Leaders have already attained substantial long-term benefits from their risk technology investments, including the ability to forecast further ahead and complete various stress tests more rapidly. Compared to their survey sample peers, the Leaders also report better performance across several key aspects of their operations, including:
- Greater benefits from automated risk modelling: 73 per cent report their risk modelling processes offer a competitive edge (versus 47 per cent in the overall sample).
- More accurate business forecasting: 37 per cent (compared to 14 per cent overall) rate the accuracy of projected balance sheets and P&L forecasts as “very high.”
- The ability to project balance sheets further into the future: 44 per cent (versus 19 per cent of the overall sample) can project balance sheets three or more years ahead.
- Greater integration between risk management and business planning: 78 per cent report their bank has already integrated regulatory stress-testing exercises with business planning (compared to 45 per cent overall).
“We can process so much more information in much more efficient and effective ways with these technologies. It is really becoming very useful,” said Mandy Norton, Chief Risk Officer for Wells Fargo.
Reimagining risk management
With financial, operational, regulatory, and reputational risk on the line, the stakes are higher than ever. Discover how your region’s banks compare to the Risk Management Leaders.
“Banks know they must automate many processes if they hope to survive today’s competitive and uncertain landscape – and risk management has emerged as a key area in need of attention,” said Miles Elliott, Head of Risk Management, SAS EMEA. “A more digitised and automated approach to risk management will enhance performance and is key to not just being compliant with regulations, but ensuring banks are sufficiently resilient to withstand today’s challenges and those far into the future.”
Banks can accelerate their transformation journeys by following five guiding principles of risk management transformation, gleaned from the actions and behaviours of the Risk Management Leaders:
- Standardise and modernise the risk modelling life cycle.
- Invest in cloud infrastructure and automation.
- Focus on quick wins versus large-scale transformation.
- Integrate risk management with business-planning activities.
- Recruit the right talent – and develop it.
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