Seven Risk Management Activities to Safeguard Your Financial Institution Against Damaging Risk Exposures

calendar iconApril 11, 2023

Although the banking regulators have already proposed requirements to address the enhanced risks brought about by recent events, it falls squarely on every financial services institution to ensure the security of their own infrastructure and collectively to maintain the integrity of the global financial system. There are several key initiatives organizations can establish as it relates to the integrity of their risk management program. Here are seven key activities to focus on:

1. Strengthening Governance and Risk Management Frameworks

Governance and risk management frameworks are essential tools for organizations to effectively manage risk while ensuring compliance with legal, regulatory and ethical standards. They serve as an overall guide for managing business risks and identifying opportunities for improvement. There are several industry-standard governance and risk management frameworks, including the Committee of Sponsoring Organizations of the Treadway Commission (COSO), International Organization for Standardization (ISO) and National Institute of Standards and Technology (NIST) Cybersecurity Framework, to name a few.

Leveraging these governance and risk management frameworks provides organizations with a systematic approach to identify, assess, prioritize and manage risks. They also help organizations evaluate their risk management programs, establish effective controls and monitor performance. A well-designed governance and risk management program can help organizations minimize the likelihood of negative events and maximize the opportunities for success.

2. Implementing Advanced Risk Analytics and Data Management

Many financial services companies have focused on ensuring the quality of their data used for regulatory reporting purposes. Establishing a risk analytics and data management program is crucial for businesses to make informed decisions, monitor account and credit data, address anomalies in data sets and reduce losses.

Implementing risk analytics and data management program starts with identifying the risks your business faces, such as financial, operational, legal or reputational risks. It is also important to maintain continuous monitoring and evaluation of the risk analytics and data management processes and make ongoing improvements.

3. Enhancing Cybersecurity Risk and Gap Assessment

A cybersecurity risk assessment informs management and the organization’s stakeholders on potential gaps that may exist, as well as what threats your business may face. In this digital age, organizations should have a formalized cybersecurity risk assessment methodology that includes Federal Financial Institutions Examination Council (FFIEC), NIST, Payment Card Industry (PCI) Data Security, National Credit Union Administration (NCUA) and Service Organization Controls (SOC) standards.

If executed appropriately and taken seriously, such evaluation will prioritize efforts and resources to support increased controls maturity in areas that require enhanced safeguards to protect covered assets and data.

4. Improving an Organization’s Processes and Controls Framework

The foundation to any organization’s compliance program is processes and controls, which underpin and secure the operations of a financial institution. The lack of codification of the data, technology and financial controls can create significant risks to controls inventories and Governance, Risk and Compliance (GRC) system. It may seem like if they have so many controls, then all the risks must be covered. Instead, resources are being wasted on testing duplicative controls leaving other controls, such as cybersecurity and data privacy untested or even missing.

Organization is key, accomplished by keeping all regulatory requirements, including policies, procedures and regulations, in a centralized and accessible location. Then by applying technology and a systematic data collection, storage and analytic tool, you can enable real-time visibility to data, measure performance and manage risk effectively. By implementing these steps, companies can improve their processes and controls, and ensure they are meeting risk and regulatory compliance requirements while minimizing risks associated with non-compliance.

5. Establishing Third-party and Vendor Risk Management Programs

With the continued popularity of IT-managed services, technology outsourcing and cloud solutions, companies need to apply more scrutiny and rigor around third parties ensuring proper cybersecurity risk management protocols are in place and monitoring their effectiveness. Safeguarding through supply-chain risk assessments can minimize the risk of supply-chain threats.

In an article discussing How to Mitigate Third-Party Threats and Reduce Organizational Risk, Cherry Bekaert’s Information Assurance & Cybersecurity Leader, Steve Ursillo unpacks how companies can reduce the likelihood of being compromised by a cybersecurity breach and the key steps to proactively address the threats in your supply chain. In addition, verifying that the appropriate third parties are receiving the coverage of a sufficient cybersecurity report to validate their cybersecurity maturity becomes a necessary element in this process. From an IT perspective, minimizing third-party risk starts with tools that include commissioning a SOC report and evaluating PCI, HITRUST, NIST, HIPAA, Cybersecurity Maturity Model Certification (CMMC) and ISO.

6. Developing and Implementing Stress Testing

Stress testing is an important tool used by financial institutions to identify potential risks and vulnerabilities in their operations, financial systems and organizational structures. The process involves subjecting organizations to simulated scenarios that test their ability to handle unforeseen events and market shocks, often with the goal of predicting worst-case scenarios and developing contingency plans. By implementing a comprehensive stress testing program, organizations can better anticipate potential risks and take proactive steps to mitigate them. This helps to ensure the long-term financial stability and resilience of any organization.

7. Developing Incident Response, Business Continuity and Disaster Recovery Plans

The key to a timely and proactive threat response and resolution is to have a thorough incident response plan that outlines the necessary steps for responding to a cyber incident. The plan should be tailored to your organization’s specific risks and include procedures for communication protocols, regular and on-going training, incident containment, post-event analysis and eventual eradication of the incident.

Furthermore, organizations should always continuously monitor market conditions and update the incident response plan as new threats and risks emerge. Regularly reevaluate the plan and make necessary adjustments to ensure it remains effective and relevant to your organization’s evolving security posture.

How Can We Help

Through proper planning and undertaking these seven activities financial services, companies can identify, monitor, control and respond to risks and threats in a complex and volatile economic ecosystem. Let Cherry Bekaert support your risk management, internal controls, cybersecurity planning and risk data aggregation programs. For more information on establishing or enhancing your organization’s risk program, contact Cherry Bekaert’s Risk & Accounting Advisory practice or your Cherry Bekaert advisor.

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