The long-term benefits of risk management by design

Within financial services, risk management is rarely thought of in terms of its impact on business transformation programs or on customer experience and engagement. But in highly dynamic and competitive markets, every part of the business — including risk management — must be viewed in terms of its ability to drive change, generate value and satisfy rising customer expectations.

That’s why some forward-looking financial services firms have turned to “risk management by design” — a fresh and customer-centric approach that embeds risk intelligence deeply into a range of critical customer-facing interactions across the customer journey, rather than orienting around traditional risk-management processes.

The idea underlying risk management by design is that advanced risk intelligence streamlines and enhances key touchpoints, such as opening accounts or applying for mortgage loans. Think of it as being an enabler instead of a roadblock.

The path to risk management by design

The path to greater risk intelligence in customer journeys is best taken via a phased approach that progresses along a series of maturity milestones — from proof of viability to advanced self-service models. 

There are many potential starting points in the progression toward full maturity. Some firms may start with data and technology, while other organizations may be better served in addressing top-down people and cultural factors.

The path to maturity isn’t an “either-or” proposition of data versus people – rather, financial services firms must strike the right balance. For instance, a more data-driven approach and well-defined linkages between taxonomies, plus the right talent, may enable risk-management teams to make better decisions.

Throughout their evolution, financial services firms should seek to establish a set of integrated risk solutions, including:

  • Maintenance of relationships between business/product architecture and risk taxonomy.
  • Self-service tools for product risk management that enable business and risk teams to confirm and create such relationships.
  • Machine-learning algorithms to recommend additional relationships.
  • Controlling microservices libraries for reuse in user stories

Product teams as first-line risk managers

Ultimately, risk management by design can help create an advanced and efficient self-service model, based on access to sophisticated tool sets, that puts real risk-management power in the hands of product and change teams that serve as the first line of defense.

When machine learning is applied to integrated data sets, control recommendations for specific products can happen automatically. Control updates will be instantly reflected in code libraries as microservices, automating what has long been a largely manual process.

Risk management will be essential in establishing the guidelines within which product teams must operate in self-service models. If the product side goes outside those guidelines, risk teams may be involved in approval processes, in addition to continuing to provide an important, independent challenge function.

Whichever path that firms choose for the evolution into maturity, we believe financial services firms must embrace four key imperatives to effectively and efficiently manage the risk of change initiatives and product development:

  • Enable the culture and operating model to embed risk management through every stage of the product development life cycle, from initial vision to ongoing monitoring.
  • Train risk professionals on product development and agile concepts, while training product teams on risk and controls concepts.
  • Design repeatable processes to identify risks and evaluate controls, with an eye to defining a long-term strategy for risk management’s role and ability to focus on monitoring, especially relative to emerging risks.
  • Develop or leverage integrated and dynamic risk solutions that increase transparency of risks and controls for products and enable self-service decision-making.

As financial services firms think about their evolving customer relationships and digital offerings, they must also think about where risk management fits into how these relationships and offerings are designed, built and monitored. Both the business and its customers stand to benefit when greater risk intelligence is integrated directly into products and across every step of the customer journey.


Amy Gennarini is the digital risk leader at EY Americas Financial Services.
The views expressed in this article are not necessarily those of Ernst & Young LLP or other members of the global EY organization.

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