OVERCOMING CHALLENGES IN RISK AND FINANCE INTEGRATION

In the ever-evolving landscape of the financial services industry, the integration of risk and finance functions is no longer just a strategic choice; it has become a lifeline to stability, growth and compliance. Traditional practices have seen these two crucial divisions operate independently, each with its unique objectives and responsibilities.

However, contemporary dynamics and challenges, such as changing regulations, evolving accounting standards, macroeconomic fluctuations and the need for enhanced managerial efficiency, necessitate a closer alignment between risk and finance. This article explores the complex terrain of integrating risk and finance and delves into how technology can be leveraged to overcome the obstacles that often hinder this endeavour.

Regulatory and accounting standards drivers. The regulatory and accounting frameworks governing financial institutions (FIs) are the bedrock of the industry, serving multiple purposes. These frameworks facilitate economic growth, provide liquidity to financial markets, protect investors from unforeseen financial risks and act as payment systems. Compliance planning involves balancing numerous significant calculations and reporting requirements, including the implementation of Basel III (often referred to as Basel IV) and adherence to International Financial Reporting Standard (IFRS) 9.

Basel III and the risk management imperative. The Basel III framework underscores the paramount importance of effective risk management and financial control in ensuring capital adequacy. Risk management is the cornerstone of a sound FI. Without adequate risk mitigation strategies, banks can easily find themselves in a precarious position. This crucial aspect of risk management involves identifying, assessing and mitigating various types of risk, such as credit risk, market risk and operational risk. The finance department plays a pivotal role in planning and ensuring the bank’s profitability, while the risk function defines the boundaries within which the FI must operate to remain sound and aligned with its profit targets.

Jan-Mar 2024 Issue

SAS Institute