Unifying Risk Management for Financial Crimes, Fraud, and Cybersecurity in Banking Institutions
Importance of Unified Risk Management
The financial services industry is increasingly vulnerable to various types of threats, including financial crimes, fraud, and cybersecurity attacks. In response, banking institutions must adopt a unified risk management approach that integrates business, operations, security, and risk teams to share intelligence and collaborate on responses to threats.
Key Benefits of Unified Risk Management
- Improved Regulatory Preparedness: Unified risk management can help prevent potential regulatory breaches by enabling real-time risk scoring and transaction monitoring.
- Enhanced Customer Experience: By optimizing fraud and security controls according to customer needs, banks can foster digital trust and improve customer satisfaction.
- Increased Efficiency: Integrating cybersecurity and fraud units can lead to significant efficiency gains in processes and activities, such as investigation and recovery.
Achieving a Unified Approach
To achieve this unified approach, banks must reexamine their organizational structure, roles, responsibilities, activities, and capabilities across each line of defense. This involves asking key questions about:
- Process: Are existing processes optimized for risk management?
- People: Do teams have the necessary skills and expertise to manage risks effectively?
- Data: Is data shared across teams to support informed decision-making?
- Technology: Are technology systems integrated to support unified risk management?
- Governance: Are governance structures in place to oversee risk management activities?
Best Practices for Unifying Risk Management
Some leading banks have already made progress in unifying their risk functions for financial crimes, fraud, and cybersecurity. For example:
- A US bank has set up a “center of excellence” to enable end-to-end decision making across fraud and cybersecurity.
- A global universal bank has combined all operations related to financial crimes, including fraud and Anti-Money Laundering (AML), into a single global utility.
By adopting a unified risk management approach, banks can improve their ability to detect and prevent financial crimes, enhance customer trust, and increase efficiency. This requires a collaborative effort across business, operations, security, and risk teams to share intelligence and respond to threats effectively.