Top three trends/challenges for risk management in 2021?
As we welcome in the new year our thoughts come to what 2021 has in store. Besides the ongoing Covid-19 pandemic and going back into full lockdown there are three trends/challenges for risk management in 2021 tat spring to mind.
Transition out of the regulatory wave
The first challenge will be to transition out of the regulatory wave that started after the 2008 crisis. More specifically, all remediation activities within credit risk where IRB and IFRS 9 models still require significant adjustments. On the non-financial risk side, financial institutions will keep investing to strengthen their operational and business resilience whilst further work on Conduct should be expected. Additionally, I expect large programmes such as IBOR transition and post-Brexit arrangements to also consume resources and time on the risk management agenda until the end of the year.
Emerging risks
Secondly, emerging risks such climate change and cyber – even though these have been on CRO agendas for a while now – will be another key focus.
Acceleration of the transition to increased automation
And finally, the third challenge / trend could be the much-expected acceleration of the transition to increased automation and further integration of RPA/AI solutions. The revolution in this space for Risk Management is yet to come.
What are the PRA’s priorities are for 2021?
The obvious one is to ensure that the latest regulations are implemented and well embedded. There is still a lot of focus on model remediation activities. Still, climate change is definitely a priority and its inclusion in this year’s stress testing exercise is a clear message that banks need to take climate change risk very seriously. In my opinion, this initiative will be a great pulse check for the industry as it will give more clarity on where large banks stand and whether/when they can meet the ambitious goals that have been set.
Also, we shouldn’t forget that we now operate in a post-Brexit world. The PRA (Prudential Regulation Authority) is already playing a bigger role in its oversight capacity of foreign banks with branches in the UK. We expect the UK regulators to go into greater supervisory depth in order to review group level information from outside of the UK. However, the bigger question for me is whether we should expect a change in direction from UK regulators that would be led or influenced by the political, social and economic agenda and eventually play a role to ensure that the City remains an attractive place to do business.
Neofin Advisory 