Today’s financial services environment is fraught with operational challenges around compliance, fraud threat management, and efficiency. Rising fraud, artificial intelligence, and regulatory pressures reminiscent of the downturn over a decade ago have increased discussion about improving efficiencies in risk management.

However, many companies fail to create a meaningful risk management strategy that addresses all these operational and efficiency needs. Management and employees frequently struggle to address daily inefficiencies due to multiple constraints, which is ironically counterproductive.

Three Reasons Management Fails to Focus on a Risk Management Strategy

Below are the top three reasons we commonly hear for management not focusing on a risk management strategy:

1. Time/Resources

Management may believe that there is not enough time to allocate resources to document and implement a risk management strategy.  Pressures from meeting daily obligations can put improving efficiency on the back burner, and a lack of having talent with specialized experience can increase the difficulty of implementing a strategy.

2. Company History

Management may believe that since regulators have never criticized the company, there is no need to invest money in fixing issues. However, just because you are not criticized does not mean the risk environment is effective.  It only takes one regulator, one consumer complaint, or one significant fraud event to turn your world upside down.

3. Profit Considerations

Since risk management does not directly make money, management may not see it as an immediate focus. And while risk management may not generate revenue, neglecting it can lead to significant costs.

Key Considerations for a Risk Management Review

If you have not performed a comprehensive risk management review recently, you should conduct one to enhance your controls, systems, knowledge, and efficiencies.

This review should consider the advancements in technology, resources, and strategies employed by fraudsters. Also, consider the regulatory requirements and expectations for compliance and information security preparedness due to the significant rise in cyber threats. Are your systems, processes, and procedures disconnected, or are you prepared?

It’s crucial to invest in improving risk management and operational efficiencies by performing a risk review of your current operational structure, process, and workflows to determine if what you have can mitigate compliance risks and external fraud threats. Neglecting this could lead to potential financial losses, regulatory non-compliance, and damage to the organization’s reputation.

Therefore, prioritize enhancing the current risk management environment to mitigate these risks and ensure the long-term stability and success of the organization.