Banks typically view risk and compliance as critical components of the business that enable it to operate, but do not anticipate the risk and compliance department to contribute to the bank's growth. Take note that both risk and compliance are critical components of banks' strategic growth plans.
As a bank grows, it requires more sophisticated risk and compliance capabilities; therefore, the majority of banks budget for increased risk and compliance management costs and include them in their growth plans. However, it is far more uncommon to see risk and compliance as the primary drivers of a bank's growth.
From Cost Centers to Engines of Growth
Banks can transform risk and compliance functions from cost centers to growth drivers, resulting in significant benefits for the bank. Both risk and compliance are typically considered cost centers because, while they require significant investment, they cannot significantly increase a bank's profit or contribute to the bank's growth. It is critical to understand that neither of these characteristics is inherent in risk or compliance; rather, they are a result of how risk and compliance are managed in financial organizations and banks.
Risk and compliance are extremely important and complex domains. Bank risk and compliance departments are overburdened with critical work – risk and compliance tasks that are both time-sensitive and require a high level of vigilance. The teams are frequently too preoccupied with managing the workflow and ensuring that existing bank operations run smoothly to concentrate on delivering additional value. A significant reason for this is that the teams are extremely busy with risk and compliance processes and have a high administrative burden.
Risk assessments are an excellent illustration of how much effort goes into risk and compliance management on an administrative level. Consider the numerous steps that a member of the risk team must take in order to conduct a risk assessment. They must first obtain risk assessments from various departments. These risk reports must then be analyzed, and the critical information extracted. The data must then be standardized in order to be combined and analyzed. Take note that the assessment has not yet begun; all of these actions are prerequisites to the risk assessment itself.
Most of the prerequisites are automated by risk management solutions. There is no need to collect data or risk reports because everything is already stored centrally in a risk management platform. There is no reason to study each report in order to extract the pertinent information, as the risk management platform standardizes all data automatically. The individual conducting the risk assessment has everything necessary to conduct the risk assessment directly rather than devoting time to administrative tasks.
Transferring risk and compliance from cost centers to growth drivers would require these departments to contribute financially to the business's bottom line or strategically to the business's growth plans. Once administrative tasks are automated, the risk and compliance teams will have more time to focus on strategic initiatives. The compliance team can concentrate on training and monitoring, thereby increasing compliance levels throughout the organization. This reduces the likelihood of non-compliance and the resulting penalties and fines imposed by regulatory bodies, directly benefiting the bank's finances. Additionally, compliance technology enables banks to reduce compliance costs, putting them further in the black.
Value creation is made even easier for the risk management team because they can assist upper management in making sound decisions. Risk managers should be the most informed members of an organization about emerging risks and opportunities. Risk management technology can assist the risk management team in anticipating emerging risks. For strategic growth to occur, it is critical to have information about emerging risks. Rather than simply managing existing risks, focusing on risk prediction enables the team to add value to the organization.
A Shift in Technology and Attitudes
Banks now have access to more advanced AI-based technology than ever before, but this is just the beginning. Banks will need to rethink their approach to risk and compliance and recognize that they can outperform the competition by implementing better risk and compliance practices and tools. Few banks use risk and compliance to their advantage, which is why the strategy will be so beneficial to those that pioneer it.
Businesses that implement modern technology and make it a part of their risk and compliance frameworks will be able to leave their competition behind. However, this needs to be done quickly, because implementing the technology once every other bank has it implemented will not provide an advantage.