Enterprise risk management (ERM) software is a distinct niche in the field of risk management software, with some unique features and functionalities that are crucial for the minimization of risk for banks, lenders and other companies operating within the financial sector.
The financial sector faces some of the most dramatic risks and vulnerabilities in the business world. A well-architected enterprise risk management software platform allows for the creation of a solid strategy and a unified, organized response to any risks that are identified.
What is Enterprise Risk Management Software?
Before you delve into the benefits of enterprise risk management software for banks, it is important to understand what features and functionalities you will encounter.
The primary objective of ERM software is to identify markers and other symptoms of risk that exist within a company’s operations, digital domain and technology. Once the vulnerabilities and potential risk factors are identified, the bank can take action to mitigate those problem areas using the platform’s project planning-type tools to plan and track the response.
Most enterprise risk management software deals in five key areas of risk:
- Operational Risk
- Regulatory Compliance Risk
- Financial Risk
- Strategic Risk
- Reputational Risk
The generally-accepted ERM framework established in 2004 calls for a multi-step approach to risk management. The steps are as follows.
- Evaluate the Company’s Internal Environment for Risk.
- Establish Risk Management Objectives.
- Identify Existing and Prospective Risks.
- Assess the Identified Risks and Assign Priority/Severity.
- Develop and Deploy Risk Response Strategy.
- Assess Controls-Related Activities.
- Communicate Risk Management Protocols and Policies Company-Wide.
- Perform Continuous Risk Monitoring.
Some risk management platforms are targeted to a specific industry, such as in the case of enterprise risk management software for banks, credit unions, lenders and other financial institutions. This software is designed to accommodate the unique needs and requirements of a banking institution, resulting in more efficient risk mitigation.
An industry-specific ERM software system may also include features such as a dashboard feed with updates on the latest laws and regulatory changes, along with new threats that have been identified within the industry. These updates can be extremely useful in keeping bank leaders apprised of potential threats and risk factors so they can take action to protect the institution, its customers and its employees.
ERM software is extremely effective for providing a bird’s eye view of the banking institution’s risk factors, allowing for a shift from siloed risk management efforts to a unified, centralized approach. This insight is key for mitigating operational and strategic risk factors, among others.
Leveraging Enterprise Risk Management Software for a Bank’s Financial Risk Factors
Financial risk factors are very real for a bank, credit union or other financial institution. These threats include more than just theft or other incidents that lead to financial loss. Financial risks also encompass cash flow issues and the inability to pay debtors. But how does an ERM software platform help an organization to address these threats and vulnerabilities?
The Basel Accords are a set of standards used to report and track credit risks, liquidity risks and trading risks. Many platforms use this as a guide for the evaluation of an institution’s financials. There are also a number of tools intended to identify, assess and react to risks arising from incidents or conditions that have a high potential of leading to financial loss (and ultimately, insolvency), from investment portfolios, to cybersecurity risks, IT systems, and even the overall business model.
Enterprise Risk Management Software for Banks Seeking to Improve Regulatory Compliance
Banks and financial institutions such as credit unions and lenders are subject to some of the most stringent regulatory oversight in the business world. The rules and regulations come at banks from all angles, from industry-specific regulatory bodies like the Federal Reserve Board, the Securities and Exchange Commission (SEC), and the Federal Deposit Insurance Corporation (FDIC). There are also a number of government regulators.
Compliance — or lack thereof — with laws and regulations accounts for a major component of a bank’s risk. A well-architected piece of enterprise risk management software for banks will include tools and features that are designed to manage vulnerabilities and respond to conditions that could lead to non-compliance. As mentioned above, the best platforms will include a feed with updates on regulatory changes and new requirements so banks can respond before any non-compliance issues arise.
Enterprise Risk Management Software for Banks Seeking to Improve Their Overall Risk Management Strategy
Currently, it is estimated that only 1 in 5 banks leverage risk management software and the resulting data as a mechanism to guide their risk mitigation efforts and business strategy development. That’s according to EY’s 9th Annual Global Bank Risk Management Survey.
But that 1-in-5 figure is rising as more and more financial institutions realize the value of enterprise risk management software for banks. That is good news because KPMG data indicates that 4 in 10 of the larger banking institutions have a risk governance and controls rating of “less than satisfactory.” In fact, the regulatory landscape continues to shift as regulatory bodies are imposing more stringent reporting practices, new regulations and additional controls — a move that has prompted many of the smaller banks and credit unions to take action.
ERM software also plays a role in driving decisions regarding consumer-level business transformations too. These changes can have a significant impact on reputational risk, which is becoming an increasingly prominent component of the risk management equation. Reputational risk management is of particular concern for banks due to the fact that these institutions really rely upon a positive public image in order to earn the trust of customers. A bank that is viewed as untrustworthy or perceived as being especially prone to risk factors is not going to succeed in the long term.
By nature, banking is a risky business. But the right software systems can make a tremendous difference, empowering companies in the financial sector with the data and insights they need to take action and protect their interests. A risk management specialist can take it a step further and that is where the team at iTech can help. Our risk management and compliance specialists provide comprehensive, cost-effective risk management solutions to clients in all sectors and industries, including the banking industry. Contact iTech today to discuss your enterprise risk management needs.