PHILADELPHIA, PA and NEW YORK, NY, December 12, 2023 – The Risk Management Association and global management consultancy Oliver Wyman have published key findings from their third annual Chief Risk Officer Outlook Survey.
This year’s survey found that Chief Risk Officer (CRO) priorities have shifted since last year, with recession readiness still key but falling from the top five, and a focus on technology and strategic risk sharpening. CROs continue to balance a wide range of demands heading into 2024, noting their top priorities have changed as follows:
Top Five CRO Priorities (2023 Survey vs. 2022 Survey)
1. Technology Risk
1. Recession Readiness
2. Strategic Risk/Disruption
2. Consumer Compliance
3. Wholesale (C&I and CRE) Credit Risk
3. Cyber Risk
4. Cyber Risk
4. Fraud and Financial Crimes
5. Tie: Risk Culture, Issues Around Operating Model
5. Operational Resilience
CROs indicated that the greatest proportion of their time—roughly half—is spent on non-financial risk, with much of that time focused on compliance and operational/resilience-related topics. The rest of their time is split, on average, between financial risks (about 30%) and enterprise, strategic, and other risks (about 20%).
Financial risks that organizations face accounted for three of the top five risks CROs named, with a significant increase in the importance of treasury and asset/liability management (ALM) risks, likely corresponding to this year’s regional bank crisis. Credit risk carried over as a top five risk from last year and takes up a greater percentage of a CRO’s time (16%) than any other risk.
CROs are also directing their attention toward anticipated shifts in the business landscape and the associated organizational and cultural ramifications in the realm of risk management. Strategic risk and disruption, risk culture, and challenges related to the operating model have emerged this year as key priorities for CROs. Refining the operating model and fostering a robust risk culture were noted as among the most time-consuming endeavors for CROs and two of the top five priorities.
Regional Bank Crisis
As a result of the liquidity crisis, speed of risk in a digital world has become a top five emerging risk, with many CROs surprised by the pace of deposit outflows and rise of contagion fears in the first quarter.
Banks are also focused on bolstering their treasury risk management capabilities in response to the crisis, with a focus on preparation for a wider range of outcomes. About 90% of CROs plan to upgrade at least one core treasury risk management capability, and two-thirds plan to update at least five core treasury risk capabilities. To prepare for uncertainty, the majority of these upgrades focus on scenario analysis (such as interest-rate risk) and monitoring/reporting (such as liquidity risk appetite metrics and interest-rate risk measurement).
Seventy percent of CROs surveyed anticipate a deterioration in both consumer and commercial credit quality over the next year. While the macroeconomic outlook appears to be less dire than a year ago, more than half of CROs still believe the environment will worsen.
Regulatory scrutiny within the banking sector has increased, with particular emphasis on liquidity and capital. This heightened regulatory attention is especially pronounced among larger financial institutions. About half of banks with assets exceeding $100 billion reported an increase in supervisory findings over the preceding year. CROs said the increased regulatory emphasis on capital and liquidity is another top emerging risk facing banks, underlining the industry's ongoing need to navigate evolving regulatory frameworks and ensure robust financial resilience.
“At RMA, our top priority is supporting bank CROs and all financial risk professionals as the sector faces challenges,” said Edward J. DeMarco Jr., RMA’s general counsel and chief administrative officer. “Risk officers play a pivotal role in monitoring the ever-evolving landscape of challenges that could impact their companies’ success, while also remaining attuned to the opportunities embedded within change. The findings from this survey not only provide a comprehensive overview of the top risks encountered by leaders in the banking sector but also serve as a valuable guide to navigate and address these challenges effectively.”
“Balancing an even fuller agenda is going to be the main challenge for CROs in 2024,” said Michael Duane, a partner in Oliver Wyman’s Finance and Risk Practice. “Investing in talent and ruthless time prioritization are going to be critical for CROs to make the space to address the continuing repercussions from the events of this past spring without dropping the ball on critical operational and strategic risk issues.”
About the Survey
The survey was conducted in the summer of 2023. More than 50 CROs from North America participated, representing institutions in categories ranging from less than $25 billion in assets to more than $250 billion.
Founded in 1914, the Risk Management Association is a not-for-profit, member-driven professional association whose sole purpose is to advance the use of sound risk management principles in the financial services industry. RMA promotes an enterprise approach to risk management that focuses on credit risk, market risk and operational risk. Headquartered in Philadelphia, Pennsylvania, RMA has 1,600 institutional members that include banks of all sizes as well as nonbank financial institutions. They are represented in the Association by 54,000 individuals located throughout North America, Europe, Australia and Asia/Pacific.
About Oliver Wyman
Oliver Wyman is a global leader in management consulting. With offices in more than 70 cities across 30 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm has more than 6,000 professionals around the world who work with clients to optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a business of Marsh McLennan [NYSE: MMC].
For more information, visit www.oliverwyman.com. Follow Oliver Wyman on X @OliverWyman.
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