With the basics in place, one way to take your risk and compliance approach and framework to the next level, and to add more value, is to incorporate external operational loss and benchmarking data into the framework.
Three reasons for using external operational loss and benchmarking data into the framework is to;
- Deliver better risk and compliance insights to your Executive and Board
- Improve engagement with your Regulators
- Proactively work with the business
Deliver better risk and compliance insights to your Executive and Board
Developing and delivering a suite of management information reports and dashboards which includes risk and compliance insights, alongside other management information is a critical part of any good risk and compliance approach and framework.
One way to take risk and compliance reporting and dashboards to the next level, and to deliver more engaging management information, is to include external operational loss and other GRC benchmarking data alongside the firm’s internal management information.
The inclusion of insights from external data alongside the firm’s internal management information enables senior management to understand how their risk and compliance framework compares to their peers and the industry as a whole. It also enables a more proactive approach to risk and compliance by understanding losses events from across the industry and asking; Could that happen to us? Depending on the answer to this question, new preventative initiatives could be started, or additional focus could be placed on the effectiveness (or otherwise) of relevant controls.
Improve engagement with your Regulators
With the increase in regulatory scrutiny that has been seen across financial services over the last 5-10 years alongside the level of regulatory and technology change over the same period, perhaps it is not surprising the availability of high quality data is limited in supporting regulatory submissions, such as ICAAP’s and to enable a high-quality interaction with regulators (or their ‘skilled persons’), firms often need to build the data on the fly from limited internal sources.
This is where high quality external data can have a real impact simply because of the ability to tap into larger datasets, with long histories alongside the ability to ‘slice ‘n’ dice’ to suit firms. By referencing such data, the engagement with regulators is improved by moving the conversation from challenging the underlying data and evidence to challenging underlying assumptions and analysis, thus moving to a much higher quality conversation.
Having this information can also enable individual supervisors to quickly get up to speed with the individual firms and to understand its relative position in relation to it peers better. This will reduce the likelihood of mis-understanding or misinterpretation leading to significant rework or requesting additional work to satisfy an issue that simply may not exist.
Proactively work with the business
Let’s be honest, undertaking risk and compliance activities is often not a top priority for many within the ‘frontline’ staff of firms. Everyone is busy in their roles and often risk and compliance activities are seen as remote, discounted from their day-to-day roles, and just another thing that must be done on top of all the other things that must be done.
However, by including external operational loss and benchmarking data within the firm’s risk and compliance approach and framework, can make it more relevant as frontline staff gain insights into what loss events are happening within other similar firms. Relating to those events and again, prompting the question; Could that happen to us? it should start a process of putting into place the improvement activities and controls to reduce the likelihood (and impact) of a similar event happening ‘on their watch’.
The value this type of proactive approach can deliver, can be significant. In one firm we have worked with, improving the internal operational loss process and adding in some rudimentary external loss data led to a 94% reduction in the value of errors and a 63% reduction in the volume of errors within an 18 month period. These reductions were primarily attributed to catching potential loss events early and moving from a reactive to a proactive stance.
For more information about our recently launched StratexStream External Loss and GRC Benchmarking Early Adopter program go to http://www.ascendore.com/stratexstream-eap
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