The elements of “getting to strong” in focus
In today's complex environment, many banking institutions are looking to re-imagine and re-examine their risk management programs. At the same time, spurred on by public pressure, regulators have raised their expectations even higher. In fact, this push for excellence even has its own tag line, "getting to strong," which is a play on the regulatory scale in which "strong" is the highest rating. ,  But scratch below the surface and you’ll find very few details on exactly what it takes to "get to strong."
We outline how each of these elements may be brought to life, offering a possible blueprint for working to strengthen risk management capabilities and addressing regulatory concerns. In each area, suggestions are drawn from helping clients shore up their capabilities.
There are four key elements banks should consider putting in place to have a risk management program that could posture itself as “strong.” These elements have not really changed over time, but their breadth and depth have. We will explain how each of these elements may be brought to life, offering a possible blueprint for working to strengthen risk management capabilities and addressing regulatory concerns. In each area, suggestions are drawn from helping clients shore up their capabilities.
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Throughout the industry there is a concerted effort to raise the game when it comes to risk management. The status quo is not good enough. As a result, the new utopian state appears to be one that defines risk management programs as being rated nothing less than “strong”. While there is little in the way of formal guidance as to exactly what strong looks like, there is a high degree of confidence that it’s not where the industry is today.
An organization’s risk appetite can set everyday expectations for its people. So how can an organization ensure the actions being taken are appropriate and uniform throughout? The answer may be found, in part, in the policies and procedures it has set in motion, and the rules implementing those expectations.
The ability to measure, monitor and report risk (MM&R) is critical to the effective management of a bank. It assists organizations to understand the risks being taken, mitigate them to the extent possible, price them appropriately and detect adverse developments on a timely basis. It is the netting that holds the risk governance process together. Not surprising, then, that significant effort is being expended by the financial services industry to raise the game on MM&R.
Internal controls have continuously been the focus of change and enhancement in the financial industry. However, this is particularly true over the past 30 years. Today, banks once again may be seeking to take their internal control framework up a notch. The reason? A desire to achieve the coveted regulatory rating of “strong” for their risk management programs.
1 While today, this rating primarily applies to the larger institutions known as Systemically Important Financial Institutions (SIFIs), the same measures can apply to a wide range of banking institutions.