What’s on the mind of CROs?

Innovation and risk typically go hand-in-hand. The best businesses are agile and constantly evolving. And with these changes comes a shift in risk which needs to be managed.  But what happens when innovation is brought to the risk management function?

Mark Faulkner, Co-founder, Credit Benchmark, and Keiran Foad, Group Chief Risk Officer, Santander, discussed the power of digital and data in creating dashboards and early warning systems.

Too much data, too often?

Foad warned that frequently the models and dashboards banks spent lots of money building didn’t provide a snapshot view of the data, and often overloaded him with too much information, none of which was actionable.

It is also important that such early warning systems were calibrated properly – it is possible to cry wolf too often, he said. And risk professionals must remember that what seems like a small issue to one person may have a big impact on another.

The best dashboards distil the key information so the business can decide what to do – and crucially what to stop doing, added Faulkner. Some areas might need detailed frequent updates, but more commonly a broader trend over time is a more useful measure.

Spreading a risk mindset throughout the business

Risk professionals are typically not very good storytellers and find it hard to put themselves in the shoes of others, such as board members. Dashboards should help paint a picture that can be broadly understood across the business, Foad said.

But culture is also a crucial part of getting risk right. If your company understands the importance of risk and getting it right, the job of a CRO is a lot easier. Although technology is a facilitator, it is ultimately people that make the decisions. So, if your culture is wrong, all the policies and frameworks you put in place, and the controls and checks from the regulators, won’t matter one bit.

The changing shape of the risk function

With this in mind, experience can count for a lot in the risk function. Foad and Faulkner both agreed that many businesses should be taking more steps to help retain the ‘grey hairs’ in the business. For example, offering people nearing retirement the opportunity to work fewer days rather than retire completely.

Human resources professionals often confine their thinking about flexible working to women and millennials, forgetting the power that it can have on age diversity.

The changing shape and skillset of the risk profession was also a theme picked up by the panellists from RBS.

Against a shifting backdrop, RBS is looking at creating more ‘T-shaped’ people – those with broad knowledge of some subjects as well as their own specialisms. As well as real technical skills, the bank is looking for people to have an understanding of the knock-on effects on risk of what they may be working on. The bank has sent people on additional training courses with the focus now on creating more agile and multi-disciplined teams, with risk embedded within them.

The risk/innovation interplay

Bruce Fletcher, Chief Risk Officer, RBS outlined how increasing competition from challenger banks and fintech start-ups, means RBS is innovating both at its core – in areas such as facial recognition, paperless mortgages and ‘instant cash’ to SMEs – as well as around the edge of its offering. This latter group includes new offerings such as esme, a machine learning-backed automated lending platform. For both the first and second line, this new, more digital focus brings with it an entirely new way of managing risk.

Frans Woelders, Chief Digital Officer, Personal Banking, RBS, backed up this view, telling the audience how far the bank had come in managing risk. His team are thinking about risk much earlier – it is about making risk inherent in processes and products rather than attempting to mitigate it, he said.

Dan Wong, Head of Innovation Risk Oversight, RBS, works in partnership with Woelders, and added that designing with consideration to risk from the start improves the overall customer experience. The mindset for CROs needs to be about enabling businesses and what controls are needed as the risk profile evolves. The best teams take the learnings from one innovation project and apply them to another.