Better together - risk and finance alignment
03 January 2017
As banks continue their drive to become stronger and more sustainable they must embrace the benefits of greater teamwork, partnerships and collaboration within their organisations. As regulatory, structural and cost challenges continue to escalate, risk and finance alignment is, more than ever, a key strategic issue for banks. During the first half of 2016 we ran a survey of the 30 largest banks globally, to better understand the latest view on risk and finance alignment. We have since held a number of roundtables on the topic, both in London and Edinburgh, which have brought together individuals from the major institutions to discuss their approach, challenges and successes; alongside 1:1 discussions with a number of clients to discuss how they are dealing with the topic vs. their peers, and where we think they can turn their focus for the coming 12-24 months.
Key results from our survey
The results of our survey highlighted the growing importance of the topic with over 75% of respondents seeing it as a key priority for 2017. Up to now, this has been largely driven by regulatory factors. Despite the value that alignment would bring to a firm, specifically in the regulatory compliance space, our survey found that most institutions have yet to define a vision or plan. A small number have started to make progress in this area, however, they are in the minority and are seen to be leaders in this area.
Risk and Finance functions have different views on what is required to achieve the ideal future state, with 40% of finance appearing to be more willing to make more significant organisational changes than risk respondents. Future models vary from optimising existing structures, to considering shared services/ utility models and joint finance and risk teams. The more obvious areas to enable alignment such as controls, process documentation and operating model modification have so far made minimal progress.
Although the survey showed that the area where most potential benefit could be achieved was in data standards and quality (figure 1), our respondents believed that organisational change and governance should be the driving force for alignment rather than technology or data. By implication, this suggests that respondents agree that a more holistic, top down approach could work best. Most progress to date has been made to comply with external reporting requirements. We believe other factors will increase in priority soon.
Is it worth the effort?
Undertaking this exercise would be no easy feat, and our clients have been vocal on highlighting the key challenges they have already faced or are expecting to face, including the large investment required, the difficulty in translating the “different languages” of risk and finance, and the upheaval and impact on the everyday culture of the functions. However, those who have already started the process have also emphasised the benefits, while those still contemplating their plan of action have noted the benefits they expect to see.
We believe that the industry will shift its focus from an external regulatory driven business case to internal business values based drivers. These will include organisations refocussing limited highly skilled resources on providing more meaningful insight on future business risk, resilience and performance. Also there is a growing focus in the sector on finding efficiency, controls and productivity improvements, achieved from newly aligned operating models. With that in mind, improving the alignment of the key risk and finance functions would undoubtedly contribute towards the progress made in these areas.
So, where do you start?
Through our many discussions, it has become clear that there isn’t one simple answer to enable progress towards risk and finance alignment. The emerging consensus is to focus on five key areas.
- Change – one function spanning finance and risk
- Data – joint data governance, services and quality teams
- Technology – an integrated technology architecture
- Reporting – some management and all regulatory reporting brought together
- Control – joint redesign and management of finance and risk controls frameworks
Getting ‘back to basics’ is a good start. Taking technology off of the critical path would allow changes to be made rapidly and benefits to be realised earlier, with technology changes following when the new teams and processes are established. Embedding core data governance and standards, in line with BCBS 239, as part of a wider data strategy rather than operating within separate risk and finance siloes. Additionally, as a result of integrating data sourcing and quality, the organization is better able to articulate quality scorecards and prioritise improvement efforts with the front office/business areas.
Whilst many organisations have purposefully not used cost as a driver for the change, inherently there have been cost savings as a result of streamlining processes, reducing the level of reporting, minimising handoffs between the functions, standardising policies and other efficiencies.
Risk and finance therefore have a critical role in meeting regulatory compliance and control requirements, but additionally we believe has the opportunity to “grasp the nettle”, to develop a case for alignment around improving business insight, operating more efficiently to drive improved business performance.
Getting in touch
If you would like to discuss any of the content in more depth or attend one of our future events, in either London or Edinburgh, please speak to your usual PwC contact, the contacts listed below or email us on: FSFinanceRoundtable@uk.pwc.com.
Rob Smith | Robert.A.Smith@pwc.com
Vivienne Snelus | Vivienne.Snelus@pwc.com
Tom Fish | Tom.F.Fish@pwc.com
Innes Ledingham | Innes.Ledingham@pwc.com