18 Nov 2020 Ankit Chadha

Managed Risk Management Services: A Catalyst For Transformation In Banking

Risk Management Services | TRC Corporate Consulting

Banks have undertaken structural transformation for nearly a decade now. It seems like it has reached a level of stability. But the future might possibly show otherwise. The industry needs to boost through innovative cost management as well as alternate revenue streams.

Currently, all banks are facing unprecedented challenges and risks. Multiple measures, including managed risk management services, have become vital. Banks need to strengthen their operational resilience and business continuity for present and future challenges.

Changing Face of Risk

The major shifts in banks and financial services organizations' role and functioning over the last few years have brought about a new way to regard risk. Unknown risks in the previous two decades can be attributed to globalization, the explosion of new businesses, growth in technology, and efficiency gains.

These specific changes have brought enormous economic growth. It has also brought a growing multitude of risks and a fundamental shift in the approach to risk mitigation. Some important shifts include:

  1. There has been an introduction of standardized risk management techniques and principles to ensure customers' and investors' basic safeguards.
  2. Due to globalization, a host of political, economic, and operating risks arise for banks and financial institutions. Especially in developing countries, businesses need to opt for effective financial risk management services.
  3. The operating efficiencies necessitate just-in-time treasury and cash management.  Banks have to ensure that they have effective risk services to mitigate the risks that arise out of this. 
  4. One risk that financial risk management services have to deal with is the risk brought in by increased focus on data and customer privacy.

Outsourcing risk management services is beneficial to handle such challenges. Newer risk management techniques are applied to help banks and financial institutions.

Outsourcing Managed Risk Management Services- Why is it Important?

Each and every year, banks and financial services organizations spend a substantial part of their time and money on mitigating risk. They also have to comply with a growing set of regulatory and operational compliance requirements.

To manage these business-critical processes banks needs vast resources, both internal and external. If you take regulatory compliance as an example, you will notice that it costs the banking industry nearly $270 billion annually to meet the demands. A lot of this expense is because many of the biggest global banks have doubled the size of compliance and regulatory teams.

Thus, amid this period of heavy investment in the risk management process and regulatory compliance, organizations are adopting a more holistic and value-based approach. They are outsourcing managed risk management services, including SOX Compliance.

Financial risk management services that are managed are experience-driven and outcome-based relationships with high levels of operational integration. They also offer scalability that leverages specialized skills and processes of an external risk services provider.

Risk and operation decision-makers across banking industry should closely observe the evolution and integration of managed services. These managed risk management services are long-term relationships demanding the attention of senior leadership spanning the banking organization. And with growing complexity and operational integration in relationships between banks and their providers, adoption of managed risk services should be a vital consideration.

For banking institutions, governance, risk, regulation, and compliance are key challenges where managed risk management services are relevant.

How Can Banking Industry Benefit from Managed Risk Management Services?

We have narrowed down three situations and explained how managed risk services perform better than traditional outsourcing or in-house execution.

Situation: When banks fail to recognize weaknesses or process gaps in internal control, deficiencies can grow to be systemic. It will cause severe financial and reputational damage to the enterprise, which will, in turn, hurt long-term sustainability.

While this process excellence in this critical task leads to a more vigilant and agile organization, it creates little differentiation for the bank in the marketplace. The customer perceptions of a bank's products and services are unlikely to be influenced by them.

It is in such situations where managed risk management services are beneficial. Banks have demanded specialized talent for internal controls, but in recent years, the industry has experienced a paucity of technical experts.

Thus, the greater the number and complexity of internal controls, the more likely lapses in oversight may occur. And presently, the operational knowledge base for many areas is expanding and deepening. Thus, this velocity of change can make it tough to ensure that in-house staff possesses cutting-edge knowledge and skills.

Hence, this specific mix of challenges can be easily addressed by managed risk management services considering these attributes.

Situation: This situation pertains to credit underwriting and monitoring. It is the beating heart of any bank. The risks to the enterprise, as well as competitive differentiation, are both elevated. Thus, the talent for this function is relatively simple to hire, and the functional knowledge base in this area is well-trodden and has evolved incrementally. The nature of this activity suggests that it should likely remain in-house.

However, it is vital to consider four criteria like enterprise risk, specialized technical expertise, competitive differentiation, and velocity of change to address the risks.

These risks include the urgency of resource acquisition, the proprietary nature of the task, ability to hire talent at a scale with the latest knowledge in the field. It is here that a strategic managed risk management services relationship is most applicable. They provide resources when urgent and also ones that are specialized and evolving quickly. Thus, in these scenarios, the costs and challenges of building an advanced function in-house may not pay off well.

The Path Ahead With Managed Risk Management Services

Until now, the banking industry had adopted traditional outsourcing models to delegate high-risk and high-value activities. Otherwise, they had an in-house team for risk mitigation.

But now, managed risk management services have taken the notion of outsourcing to the next frontier. They take control of business-critical functions that are integral to protecting a firm's overall value. The banking industry will get scalable process expertise. They will also gain the confidence to reallocate their most critical resources to focus on top strategic priorities. These include core business growth, value creation, differentiation, and profitability.

How Does TRC Corporate Consulting Helps With Risk Management Process?

At TRC Corporate Consulting, we deliver solutions that proactively manage risks, identify continuous improvement opportunities, and create long-term business value. We help organizations to attain competitive lead, a superior brand image, and profitable financial returns through our risk management services.

For any trouble in understanding, feel free to get in touch with our professionals at TRC Corporate Consulting today!