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1、Copyright 2023 by The Risk Management Association and Oliver WymanShifting Priorities,Enduring Risks:The 2023 RMA and Oliver Wyman CRO Outlook SurveyNovember 2023December 2023Shifting Priorities,Enduring Risks:The 2024 RMA and Oliver Wyman CRO Outlook SurveyAdvance your world.2Shifting Priorities,En
2、during Risks:The 2024 RMA and Oliver Wyman CRO Outlook SurveyWith cyber risk ever prevalent,significant new regulatory guidance taking hold,and banks reliance on third parties for technology growing,chief risk officers continue to spend the largest share of their time monitoring and managing non-fi-
3、nancial risks.But in the wake of a liquidity crisis that felled three institutions and brought numerous bank deposit runsand with credit risk spikingfinancial risks are also demanding increasing attention.Thats according to the latest edition of the RMA and Oliver Wyman CRO Outlook Survey.Conducted
4、in summer 2023 with contributions from 51 institutions with diverse asset sizes and geographic footprints,the survey gathered information about:Risk agendas,emerging risks,and budgeting.Reactions to the regional banking crisis across the industry.External outlooks on the macroeconomic,regulatory,and
5、 competitive land-scapes.In a fast-moving world where multiple and changing exposures can make manag-ing risk feel like playing zone defense,the survey highlights how peer risk leaders and institutions are balancing their time and attention.In detailing how CROs spend their time and CRO assessments
6、of top risks and priorities,the survey data put a banks risk management practices in context and inform its journey going forward.Jake Ritchken,a principal at Oliver Wyman,said the survey report“highlights several important trends for CROs as they look to prioritize their initiatives for 2024,partic
7、ularly in topics related to risk measurement and preparedness.”“The timing of the survey release isnt a coincidence,”he said.“Its intended to serve as valuable input as CROs shape their 2024 priorities with their teams and their boards.”This article discusses seven key takeaways.Prioritizing a Compl
8、ex and Challenging Agenda3Shifting Priorities,Enduring Risks:The 2024 RMA and Oliver Wyman CRO Outlook SurveyCROs continue to allocate the greatest proportion of their time to non-financial risk management.CROs dedicate about half their time to non-financial risks,with the other half split between f
9、inancial risks(33%)and enterprise,strategic,and other risks(17%).Its important to note a distinction based on bank size.For banks smaller than$100 billion,the average portion of time spent on non-financial risks was 54%,according to the survey,compared to 30%on financial risks.At banks larg-er than$
10、100 billion,the average percentage of time devoted to non-financial risk was 41.5%,still edging out the time allocated to financial risks(37.5%)but by not nearly as much.On the whole,time allocated to non-financial risks included:compliance(13%),operational(12.6%),cyber(10.3%),and third-party(6.7%).
11、Of all the top risks reported by CROsboth financial and non-financialthe most common was cyber.Fifty-eight percent of CROs put it in their list of top five risks.Another non-financial risk category,fraud and financial crime,made 42%of the top risks lists.Non-financial riskCRO Time Spent on Risk Type
12、sAverage of time distributions per risk type split across bank asset size.Financial riskEnterprise risk17%49%33%No.1Takeaway 4Shifting Priorities,Enduring Risks:The 2024 RMA and Oliver Wyman CRO Outlook SurveyWhile financial risks do not account for the largest share of a CROs time,they are rising i
13、n prominence,including an increased focus on treasury risks.Non-financial riskTop 10 Most-Common Risks Faced by Banks*Frequency of risk areas appearing in respondents lists of top-five risks.Financial riskEnterprise riskCyber riskTreasury/ALM riskWholesale(C&I and CRE)credit riskRecessionary environ
14、mentFraud/financial crimeTechnology RiskStrategic risk/disruptionConsumer complianceChange managementIssues around operating model50%58%42%38%31%31%42%42%38%27%At a time of heated competition for deposits,a worrying flood of office vacancies,and spiking consumer loan delinquencies even as GDP grows,
15、three of the most common top risks reported by respondents were financial:treasury/asset-liability management risks(cited as a top risk by half of respondents),wholesale(C&I and CRE)credit risks(42%),and a possible recessionary environment(42%).The risk CROs devote most of their time to is a financi
16、al one:Survey respondents spend an average of 16%of their time managing credit risk.The survey also found that CROs spend an average of 10%of their time on another financial risk categoryliquidity and treasury.Following the liquidity crisis that marked the earlier part of 2023,more CROs are classify
17、ing treasury/ALM risk as a top risk29%versus 17%in last years survey.No.2Takeaway 5Shifting Priorities,Enduring Risks:The 2024 RMA and Oliver Wyman CRO Outlook SurveyBeyond regulatory and economic concerns,CROs are focused on potential business changes and the organizational/cultural implications fo
18、r risk management.Strategic risk/disruption,risk culture,and issues around operating model are cited much more often as priorities.In a year when concerns regarding AI and technology risk,strategic risk and dis-ruption,and wholesale credit risk were ascendant,some high priorities from the previous s
19、urvey have dropped in the rankings.Recession readiness is clearly still crucial.A possible recessionary environment ranked as a top risk for many CROs.And over half of CROs believe that the macroeconomic environment will continue to worsen over the next year.But it was listed as a priority by only 3
20、2%of CROs,down from 52%a year prior.Another area sliding down the priority list was climate risk.It was listed by 7%of CROs,down from 27%in the prior survey.Rising on the priority list were strate-gic risk/disruption(up 23 percentage points),risk culture(20 points),technology risk(19 points),and tre
21、asury/ALM risk(13 points).Despite an apparent drop in priority level,said Michael Duane,a partner in Oliver Wymans Finance and Risk Management practice,“climate risk is still a pressing concern for many banks.”“I think there are two things driving this finding in the survey,”he said.“First,the immed
22、iate reactions to the regional banking crisis have put topics such as ALM,interest rate risk in the banking book,and liquidity risks higher on the pri-ority list.Something has to give.”“Second,compared to a few years ago there is more certainty on what is expected of risk managers when it comes to c
23、limate,which is a source of comfort to CROs,”Duane said.“Supervisory expectations have become clearer since our first survey in 2021,and banks are advancing methods to manage climate risk through efforts including RMAs Climate Risk Consortium.Oliver Wyman has proudly contributed to the consortiums c
24、limate data and climate scenario analysis working groups,which are helping to refine industry practices in those areas.”No.3Takeaway 6Shifting Priorities,Enduring Risks:The 2024 RMA and Oliver Wyman CRO Outlook SurveyIn addition to developments in the economy and industry,the changing priorities ref
25、lect the actual activity and workload of CROs.Respondents on average said their top time-consuming activities were:Risk governance and issue management,including risk appetite breaches and board reporting(15%of their time).Activities related to roles,responsibilities,and the operating model(12%).Reg
26、ulatory affairs/relationship management(11%).Risk identification,including emerging risks(11%).Risk culture(9%).New initiatives(9%).Ritchken said efforts related to the operating model,risk culture,and new initia-tives make sense when you consider that“as a bank changes its operating model,the manne
27、r in which the risk organization engages must change to keep pace.”A cohesive operating model and“full buy-in to the idea that risk management mat-ters”are key,he said.Top CRO Priorities Over the Next 12 Months*Frequency of risk areas appearing in respondents lists of top-five priorities.Technology
28、riskStrategic risk/disruptionWholesale(C&I and CRE)credit riskCyber riskRisk cultureIssues around operating modelFraud/financial crimeRecessionary environmentTreasury/ALM riskConsumer compliance46%46%36%36%32%29%39%39%36%25%7Shifting Priorities,Enduring Risks:The 2024 RMA and Oliver Wyman CRO Outloo
29、k SurveyThe speed of deposit withdrawals during the liquidity crisis,enabled by instan-taneous,digital transactions and prompted in some cases by social media-spread anxiety,signaled a more dangerous era of risk.Many CROs were surprised by the pace at which the events of the first quarter unfolded,i
30、ncluding the speed of deposit outflowsone institution lost$42 billion in deposits in a single business dayand potential contagion risks.This phenomenon was a new entrant to the surveys list of top emerging risks,where a third of respondents named the speed of risk in a digital world as a top emergin
31、g risk.“The pace and scale of contagion risks and taint of industry prob-lems can affect the industry at-large,”one respondent observed in an open-ended survey response.“It was an important lesson learned:how quickly contagion risk can affect financial institutions.”Ritchken said the crisis“showed u
32、s how important it is for everyone to under-stand the importance of risk,and the speed at which things can change when risks materialize.”The impact of technology on the speed of risk is now seen as a significant emerging risk.Top Five Emerging Risks,2022 vs.202320231 Change in regulatory focus/inte
33、nsity2 New interest rate regime/inflation3 Recession4(tie)Speed of risk in a digital world4(tie)Re-emerging/heightened capital and liquidity regulation1 Change in regulatory focus/intensity2 New interest rate regime/inflation3 Recession4 Disruption by challengers5 Heightened consumer compliance expe
34、ctations2022No.4Takeaway 8Shifting Priorities,Enduring Risks:The 2024 RMA and Oliver Wyman CRO Outlook SurveyBanks are focused on uplifting their treasury risk management capabilities,including preparation for a wider range of outcomes.To be sure,the speed of withdrawals was a notable factor in the
35、liquidity crisis.But other important factors included a lack of stickiness in deposits,bank assets held in long-term instruments that lost value,and the effects of a rapidly rising interest-rate environment on both.At the time the survey was conducted,about 90%of CROs indicated they planned to upgra
36、de at least one core treasury risk management capability.Two-thirds were planning to update at least five core treasury risk capabilities.The majority of planned upgrades focused on scenario analysis(for example:liquidity stress testing and interest-rate risk),and monitoring/reporting(liquidity risk
37、 appetite metrics and interest-rate risk measurement).In a fast-moving and uncertain environment,many survey respondents said they were already acting.Measures taken included:Updating short-term ILST scenarios.Evaluating potential scenarios and impacts to risk profile.Strengthening control suites.Ac
38、tively monitoring through analytics and engaging in discussion of results.Establishing metrics to monitor on a quarterly basis.Establishing action plans on top identified risks to ensure appropriate oversight.No.5Takeaway 9Shifting Priorities,Enduring Risks:The 2024 RMA and Oliver Wyman CRO Outlook
39、SurveyDuane said the quick and widescale adoption of enhanced liquidity and ALM frameworks was among the surveys most surprising findings.“It isnt just 50%of banks,”he said.“Its the significant majority.”One CRO said the crisis was a reminder that“interest-rate risk and liquidity risk management mat
40、terdespite the fact that these areas have received limited su-pervisory attention in the past decade.”Top Five Treasury Risk Capabilities CROs Plan to UpdateLiquidity stress test(scenarios,models,methodologies,or assumptions)Enhancements to IRR management approachesEnhancements to risk management wi
41、thin the securities portfolioCash flow forecastingOther liquidity85%89%52%70%59%10Shifting Priorities,Enduring Risks:The 2024 RMA and Oliver Wyman CRO Outlook SurveyPerhaps reflective of surprisingly strong jobs and GDP reports as 2023 pro-gressed,the CRO outlook for the overall economy is not as di
42、m as in the prior survey.Slightly more than half of respondents said the economy will worsen in the next year,down from 84%who held that view a year earlier.But that less-negative tone did not translate to credit risk.Seventy-eight percent of CROs believe the commercial credit environment will worse
43、n,and nearly 90%believe that a worsening consumer credit environmentwhich has experienced spiking delinquencies for auto loans,student loans,and credit cardsis in store.Commercial credit risk is seen as a higher-priority risk than consumer credit risk by respondents.Thirty-nine percent put wholesale
44、 credit(C&I and CRE)risk in their top five priorities list,while 14%assigned that status to consumer credit risk.CROs continue to be pessimistic about the credit environment.CRO Outlooks on the Consumer and Commercial Credit Environments Outlook on 2024 National Consumer Credit EnvironmentOutlook on
45、 2024 National Commercial Credit EnvironmentMuch WorseWorseSameImprove(0%for both)11.1%88.9%22.2%74.1%3.7%No.6Takeaway 11Shifting Priorities,Enduring Risks:The 2024 RMA and Oliver Wyman CRO Outlook SurveyThe Federal Reserves November 2023 Supervision and Regulation report said su-pervisory findings
46、are up across the industry as the regulator moves to“enhance the speed,force,and agility of its supervision”in the wake of the liquidity crisis.That was borne out by the survey results.Fifty-four percent of respondents said new supervisory findings had increased in the past year.That was up from 39%
47、a year earlier.The 27%of CROs who reported a significant increase was up from 12%.The increase in supervisory attention was most common for larger institutions.Half of CROs at banks above$100 billion in assets said findings were up signifi-cantly,compared to 17%at banks below$100 billion.With regula
48、tors focused on treasury issues,CROs overwhelmingly expect to see increased regulatory and supervisory findings at peer banks regarding liquidity(89%)and capital(81%)over the next year.Most also expect to see an increase in findings on third-party risk(78%),cyber risk(69%),and data,IT,and resiliency
49、(69%).Compared to a year earlier,fewer CROs are expecting increased findings regarding ESG,climate,and equity28%,compared to 72%in the prior survey.Regulatory attention and scrutiny have increased,with a particular focus on liquidity and capital.Percentage of Respondents Reporting Increases and Decr
50、eases in Supervisory Findings in 2023Modest decreaseSameModest increaseSignificant increase15%31%27%27%Fify-four percent of respondents experienced an increase in supervisory findingsNo.7Takeaway 12Shifting Priorities,Enduring Risks:The 2024 RMA and Oliver Wyman CRO Outlook SurveyLike every year,the
51、 universe of risks to monitor and manage closely seemed to expand in 2023,prompting the question:How can risk organizations continue to meet ever-growing and more complex responsibilities?One way,of course,is bigger risk budgets.Several respondents reported that spending on risk management at their
52、institutions had increased modestly in per-centage terms.The average risk budget as a proportion of total budget was 6.3%,up from 5.8%in the previous survey.Just over half of CROs expect their banks risk spending to increase over the next three years,while others expected budgets to remain constant
53、or even decrease.This emphasizes several challenges that CROs face given the difficult econom-ic climate.“Many CROs are being asked to do more with the same or even less,”Ritchken said,“which is particularly challenging for some areas where technical skills are in high demand,such as treasury risk.”
54、Short of significant funding increases,the answer to expanded responsibilities likely includes tapping AI and other technologies,de-emphasizing practices that are not as effective or efficient as they once were,and being on the lookout for innovation.No matter how risk management evolves and adapts,
55、the annual RMA and Oliver Wyman CRO Survey will continue to serve as a critical benchmarking tool for CROs,their risk organizations,and their institutions.Final ThoughtsEd DeMarcoChief Administrative Officer and General CounselRMAMike DuanePartner,Finance and Risk ManagementOliver WJake RitchkenPrin
56、cipalOliver WAbout RMAFor more than 100 years,RMA has been laser focused on one thing:helping its members in the worlds financial institutions better understand and address risk.As a trusted partner,RMA has weathered the many economic ups and downs of the last century alongside its members,which now
57、 number 1,600+financial institutions of all sizes,from multi-nationals to local community banks.These institutions are represented by over 51,000 individual RMA members located through-out North America,Europe,Australia,and Asia.Our members rely on us to keep them abreast of important industry trend
58、s and prepare them to face new challenges head-on.Our sound risk management principles are developed for mem-bers,by members,and help to build safer,stron-ger financial institutions,impacting local commu-nities and the global economy.All of this makes RMA uniquewe are the only comprehensive source o
59、f risk management tools and education that has spanned the last 100 years.And we look forward to the next 100 as we help the industry come together on the transfor-mative issues of climate,cyber,culture,technolo-gy,and more.About Oliver WymanOliver Wyman is a global leader in management consulting.W
60、ith offices in more than 70 cities across 30 countries,Oliver Wyman combines deep industry knowledge with specialized expertise in strategy,operations,risk management,and orga-nization 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 .Follow Oliver Wyman on X OliverWyman.