Magazine article Risk Management

What Banks Can Learn: From Other Industries about Risk and Compliance

Magazine article Risk Management

What Banks Can Learn: From Other Industries about Risk and Compliance

Article excerpt

Many banks benchmark their risk and compliance practices against those of other banks. This makes sense and isn't just a financial-sector phenomenon. But a great way of driving innovation and improving efficiency is to look beyond the banking world and towards other industries, such as manufacturing, energy, airlines, retail and hospitality.

There are a lot of lessons that banks can teach other industries, but at a time when the pressure to improve profitability is tremendous, other industries can offer banks tried and tested ways to improve costs, focus on high-quality earnings and enhance competitive differentiation.

OPERATIONAL RISK MANAGEMENT

To energy companies, operational risks are a critical source of earnings volatility. This was clearly demonstrated in the 2010 Deepwater Horizon oil spill and tsunami-damaged Japanese nuclear power plant that caused widespread damage to the public as well as the profitability and reputation of the companies involved.

While operational risk in banks does not have the same kind of life-and-death implications, it is becoming an increasingly evident source of earnings volatility and reputational harm. High-profile incidents such as the Libor interest rate-fixing scandal and JPMorgan "London Whale" trading loss illustrate the point.

In this regard, banks would benefit from studying the operational risk management practices adopted by energy companies. Many energy companies have established a common operational risk management framework, mapping risks to business processes, creating centralized risk libraries and integrating risk assessments into decision making.

LOSS INCIDENT DATA MANAGEMENT

Banks may already be tracking loss-event data. But how effectively is this data being integrated, analyzed and leveraged to support decisions in areas like employee training and the adequacy of insurance coverage?

Take customer complaints management. Airlines and hospitality companies focus on gathering complaint data across channels, identifying failure areas and prioritizing process improvements.

Many banks, on the other hand, still have some way to go in this area. In a world where Twitter and Facebook offer a platform for anyone with an opinion, it may not be wise to ignore social media as a rich data source. To mitigate these reputational risks, banks need to find ways to effectively capture customer complaints, analyze trends and leverage this data to shape strategy. …

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