The Future Chief Risk Officer: Navigating Complexity in an Uncertain World
The role of the Chief Risk Officer (CRO) has evolved significantly in recent years. In the past, CROs were primarily responsible for managing financial risks. However, as the world has become more interconnected and complex, the risks that businesses face have also become more diverse.
This has led to a growing demand for CROs who have a broad understanding of all types of risk, as well as the ability to integrate risk management into strategic planning processes.
Recent events have also shone a spotlight on the roles growing complexity and rapidly expanding remit. We have seen bank runs during increasing interest rate and high inflation environments, major cyber incidents, and a rightly ever-increasing focus on climate and environmental narratives. While the CRO’s traditional focus was mainly on financial risks, such as credit, liquidity, and market risk, they are now expected to have detailed insights into a wide range of non-financial risks, including cyber, culture, talent, geopolitical, climate change, reputation, digitisation, regulation, and more. Almost all are increasing in urgency and the pace of emerging issues, in some cases, can be explosive.
Some key takeaways we see as being key to the success of future CROs are:
An enterprise mindset: CROs will need to go beyond a purely reactive approach to risk management. They must embrace a strategic mindset that aligns risk management with the broader business strategy and customer needs. By integrating risk considerations into decision-making processes and providing insights to drive innovation.
Collaboration and Stakeholder Engagement: The CRO is seen as a key relationship to CEO and CFO, but increasingly Independent non-executive directors need to know not just how the bank is performing today, but also the outlook and risk it is taking. Therefore, the future CRO must be a skilled collaborator, capable of fostering strong relationships with key stakeholders both internally and externally. Effective communication and collaboration with business units, executive management, regulators, and external partners will be crucial for ensuring a holistic and comprehensive approach to risk management.
Digitalisation and simplification: Technological advancements are helping to reshape the financial services industry. The future CRO must possess a capability in understanding an organisations end-to-end processes to reduce operational risks. They should focus on improving and strengthening these processes first to avoid digitising bad processes. The result will help to enhance risk assessment capabilities, detect emerging threats, and implement robust controls to safeguard the organisation.
Leveraging Data and Analytics: Data has become an asset in risk management. Future CROs and their teams must build strong analytical skills enabling actionable insights from vast amounts of data. By harnessing advanced analytics, machine learning, and predictive modelling, CROs can enhance risk identification, improve risk quantification, and develop proactive risk mitigation strategies.
Navigating Regulatory Complexity: Regulatory landscapes continue to evolve, becoming increasingly complex and demanding. Future CROs must be well-versed in regulatory frameworks and possess the agility to adapt to changing requirements. They should proactively engage with regulatory bodies, understand the implications of regulatory changes, and develop robust compliance programs that ensure adherence while minimizing disruption to business operations.
Fostering a risk aware culture: CROs must champion a risk-aware culture throughout an organization, promoting a mindset where risk is seen as an opportunity rather than a threat. Shifting the perception of risk management from being a hurdle to do business, to one of enablement, innovation and growth that supports the business strategy and ultimate, protects its customers. By fostering a risk culture, CROs can empower employees at all levels to proactively identify and manage risks, creating a resilient and agile organisation.
As we look to the future, the role of the Chief Risk Officer will become increasingly vital in guiding financial services firms through a complex and uncertain landscape. The future CRO will be a strategic leader, leveraging technology, data, and a risk-aware culture to drive innovation and ensure sustainable growth. By embracing these key attributes and responsibilities, the future CRO will play a pivotal role in shaping the success and resilience of organisations in an ever-evolving world.