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Introduction

On 12th June 2018, the Institute of Risk Management is organising a networking event for #IRM members Expanding business #risks: A 2017 look back at the evolving nature of business risk and the key drivers. 

Regulatory intervention, including the proliferation of Section 166 Skilled Persons Reports, revised accountability regimes (SIMR/SM&CR) and close and continuous monitoring by supervisors, all point to a minimum standard.

The legal requirement placed on Directors to protect and enhance shareholder value, requires an integrated and holistic approach that goes beyond this minimum.

Business Risks

The dynamic and fast paced environment has certainly created new and emerging business risks.

Direct and indirect network effects, interconnected ecosystems, multisided platforms and digital transformation (including Open API) have all increased the complexity of Business Risks, which are often not understood by the Board or the Risk Function alike.

The ever changing #strategic landscape places even more emphasis on strategic tools such as Horizon Scanning to quantify and understand risks which could have a major impact on the #businessmodel.

The Financial Conduct Authority Business Plan 2018/19 and DP18/2: Transforming culture in financial services, demonstrates the #FCA’s determination to focus on a firm’s #culture and #governance, and also specifically the role of #Leadership as a driver of a firm’s culture.

Common themes of failure

For those who work in Financial Services, the common themes of failure are well understood and include:

  • A reliance on ‘black box’ capital modelling ~ even the quants have difficulty explaining aggregation, model limitations and rationale for diversification haircuts
  • Poor quality information flows to the Board ~ Enterprise Risk Management is still driven by siloed risk-category thinking that adopts an ‘inside-out’ perspective
  • Systemic macro-level risks ~ Firm’s do not operate in isolation and are subject to external threats that play out across sub-sectors, industries and supply chain partners
  • Risk vs. Strategy ~ for many organisations terminology and functional boundaries get in the way of a sensible conversation about exposure quantification and management

Solutions

Firms should go beyond the minimum regulatory requirement and rethink the organisational culture by:

  • Creating the right conditions for innovation
  • Collaborating with both internal and external experts
  • Evolving the risk operating model and processes, so an ‘outside-in’ approach is adopted which anticipates and responds to complexity

Reciproco provides knowledge integration across risk, solvency and strategy, including digital transformation, leading complex and unique projects in regulated sectors. Helping senior executives and management teams focus on strategic challenges to create a competitive advantage.

Darren Munday is the founder and Managing Director of Reciproco. An experienced executive with over 20 years’ global experience with multinational companies, including Chief Risk Officer reporting to the Board.

Darren is an Honorary Visiting Fellow of the Digital Leadership Research Centre, Cass Business School where he also holds an Executive MBA.  Darren is a Certified Fellow of the Institute of Risk Management (CFIRM) and Chartered Insurance Risk Manager (ACII) of the Chartered Insurance Institute.


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