R&C: Could you explain the idea of ‘risk transformation’ and why is it gaining increasing momentum?
Kazmi: Risk transformation, broadly speaking, is the strategic alignment of an institution’s risk management discipline with its operating model in order to gain operational efficiencies and increase shareholder value. It is the integration of the risk function within every aspect of the institution. A fundamental shift occurs when an institution undergoes risk transformation: the risk management function becomes a trusted adviser to senior management and the board and a strategic business partner across the organisation, while aligning itself cross-functionally. The emphasis is on achieving an enterprise-wide view of the company’s risk exposure, through shared data, insights, information and employees. This approach takes risk beyond its traditional role as a ‘comply and control’ function and creates a competitive advantage for the institution. Over the past decade, institutions have been preoccupied with meeting evolving regulatory expectations. This has not left much time for the risk function to iterate strategically. Many initiatives were satisfied through ad hoc solutions that addressed only the problem at hand. Redundancies were rampant and cross-functional efforts were uncommon. While the quest for cost reduction and operational efficiencies has been one of the driving factors for institutions to pursue risk transformation, one of the near-term triggers has been the current expected credit loss standard (CECL) and its comparable international standard – the International Accounting Standards Board’s IFRS 9. As the most complex accounting change in several decades, the CECL implementation process, unlike stress testing, has required institutions to break down silos between the lines of business and the risk management, finance and accounting functions.
Oct-Dec 2019 Issue