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How to Better Coordinate Data and Processes Across Risk and Finance

While CRO's have gained increase independence as a result of the regulatory environment, that same environment also requires strong integration between risk and finance.

While a volatile economy and increasingly difficult regulatory landscape for banks has led to greater authority and independence for bank CRO's, the functions of risk and finance still require greater coordination in areas like data-sharing and processes, a new study by Accenture, a consulting firm found. The study, "Rethinking Risk in Financial Institutions," examines how banks and other financial institutions can achieve greater coordination between CRO's and CFO's without threatening the authority that CRO's need to deal with regulatory issues.

In the report Hakan Berg, CRO of Swedbank, remarks that financial institutions that used to be run by the CEO and CFO are now being managed by the CEO, CFO and CRO. And the CRO's seat at the decision-making table is justified by today's ever-changing regulatory environment, which often require greater use of risk models in business decisions, the report argues. But that independence also means risk has to be more coordinated with finance to help make those business decisions "The risk function should be separate in reporting to the board, which is what creates the pressure to integrate around processes, systems and data," Richard Lumb, Accenture's Group CEO of Financial Services, was quoted as saying in the study.

[See Related: Banks Beware: Operational Risk Increasing]

The report said that risk and finance particularly need to integrate their data to avoid conflict between the two and meet compliance with regulations such as the Basel III capital requirements. Swedbank's Berg mentioned that his bank had been working for the past few years on developing a common data warehouse across its risk and finance departments. This sort of integration, the report noted, can help smooth the path to more cooperation between CRO's and CFO's and eliminate unnecessary operational delays.

Banks have also seen benefits in greater collaboration between risk and finance in formulating risk and capital models. The report cited one anonymous CRO of of a global bank as saying that banks who have achieved greater integration in those models are able to have a better view of how each transaction will affect their financial, regulatory reporting, and regulatory capital sides. This in turn can lead to improvement in risk-adjusted returns, the report said, as factoring risk into business decisions can help eliminate high-risk assets from the balance sheet. "A potential benefit of a strong partnership [between the CRO and CFO] is lower volatility in results despite the volatile external environment," Accenture's Lumb explained.

Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio

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