The finance industry continues to struggle to meet the informational demands of regulators and other stakeholders. Financial organizations continue to face an increasingly complex and demanding regulatory environment. More intense scrutiny from regulators, stakeholder demands for greater transparency and a greater appetite for insightful business analytics are demanding a revamping of antiquated manual approaches to compliance management. Financial firms now need to effectively manage and monitor daily compliance, and also watch the market closely for emerging compliance risks, educate stakeholders on the business impact and report on the status of key compliance risks.

Building better data management capabilities is key to meeting these demands. To successfully meet regulatory demands banks need to align their risk and finance functions, with an important component of this alignment being data management. This includes data ownership, data architecture, metadata management, and data delivery.

What does risk and finance alignment mean?

Risk and finance alignment is an organized way of more closely linking some elements of both the risk and finance functions in an organization. It requires a complete and practical view of the risk and finance functions, especially from the point of view of data management, governance, process management, technology, and standards definition.

Complicating things are the fundamental differences between risk and finance. Operationally risk and finance teams lack the necessary infrastructure and still maintain fragmented and disparate systems. They use only stopgap and short-term fixes after a financial crisis, which don’t serve the long-term purpose and end up increasing costs and lowering quality. From the data management point of view, this leads to reporting inconsistencies, manual workarounds, excessive time on handling errors, and other issues from regulators.

What mitigates risk?

Data management – Financial institutions thus need to improve their data management capabilities across the organization as well as among the risk and finance teams. To maximize the benefits of a data management initiative, they need to tightly align their risk and finance functions, especially since their responsibilities towards meeting the informational needs of regulators and stakeholders, are interlinked. Financial firms that master their data management can effectively demonstrate to regulators and external stakeholders their institution’s financial health and risk management capability.

Compliance – It must become part of strategic decision making, especially since regulators are enforcing this position with new and updated requirements for risk-based or strategically aligned risk management practices that include compliance operations. Traditional approaches will not be able to meet these expanded obligations. They need the support of solutions that provide technology, content, and analysis to improve understanding and help to quickly identify compliance risks and their business impact. 

Several financial firms have established policies and procedures that define the accountabilities for data owners and stewards, they haven’t been effective in fulfilling these responsibilities and introducing lasting change in how data is overseen. The desired state is possible through a process of risk transformation, i.e. integration of risk management into the business core, taking risk management to higher levels of excellence by driving practices throughout the organization. This means embedding risk management in the daily activities of bank/ financial firm employees so as to align the conduct and practices of the business and of risk management with the businesses strategies.

The risk transformation approach considers the need to respond to regulatory change as an opportunity to strengthen not only the management and governance of risk but also management of capital and operations and the supporting IT infrastructure. One challenge risk managers face, however, is data scattered across the financial organization. The good news is the evolution in computing and risk technology, and related developments in new technologies that exploit Big Data, analytics, mobile applications, cloud computing, ERP, and GRC systems. These technical advancements offer risk managers and those involved in improving existing risk management programs with better abilities for enhancing risk management effectiveness.

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About the author

Tamil Bharathi is the Client Advisor at Zuci. He specializes in advising and offering critical customer-centric solutions to new and existing customers for the best end-user experience. He is a fun person with a great sense of humor. Check him out at Tamil Bharathi.