ERM for Financial Services

Enterprise risk management (ERM) is a business strategy that aims to help organizations understand, articulate and control the nature and level of risks based on exposure.  It also creates accountability for risks taken and activities engaged in.  A major benefit of ERM is that it provides an enhanced perspective and focus on risk management across the entire organization.

Recent events, such as the global pandemic, economic uncertainty, growing complexity of risks related to product/service offerings, and an ever-changing regulatory environment have helped fully launch ERM strategies into the financial services industry.  Because of this, financial institutions recognize that strong risk management practices are important.

A bank’s ERM program should include processes to detect, measure and manage risks related to the achievement of their goals.  When implementing ERM, banks should perform the following:

• Define roles and responsibilities for oversight and governance
• Define key strategies and objectives for achieving success
• Establish a risk appetite and determine performance measures
• Perform a risk assessment to identify and prioritize key risks
  • Credit risk, liquidity risk, operational risk, market risk, cybersecurity risk
• Establish risk mitigation/action plans
• Communicate results and monitor action plans
• Review/revise the program as necessary

ERM is important because it helps an organization determine a plan to guide the overall success and safety of the business.  It supports better structure, analysis and reporting, and helps executives focus on making better risk mitigation decisions.  Ultimately, ERM can help enhance organizational resilience.