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White Paper

ERM Business Architecture

 

A plethora of regulations, evolving risk management methodologies, complex financial instruments and globalization have all contributed toward increasing the complexity and scope of the risk landscape across the banking and financial services industry. 

Risk management is no longer perceived as a compliance initiative, but is increasingly being regarded as a key horizontal function cutting across organizational silos comprising business units, portfolios and support functions of the bank. This has led to an exponential increase in the business capabilities, supporting information technology (IT) systems and volume of information falling under the purview of risk management.

Not surprisingly, banks across the globe are finding it increasingly challenging to keep up with the pace of business capability needs related to risk management and are either procuring new proprietary risk solutions or developing them in-house, which is further contributing to the disconnect between business and IT. Although additions to the existing risk management architecture help in closing identified gaps and are a necessity, it is critical to understand their specific role in the bank’s enterprise risk landscape from a holistic perspective. Ad-hoc additions may meet the short-term needs of compliance but tend to fail in providing a strategic benefit to the bank in the long term.

Hence, there is a growing need for banks to derive a holistic view of the enterprise risk landscape both from a business and technology perspective. As a first step, banks can develop an end-to-end business-driven architecture encompassing all the key risk capabilities and functions. Such a business driven architecture would eventually enable a greater alignment of the risk business along with multiple other business benefits.

For banks to fully realize the benefits of a business driven Enterprise Risk Management (ERM) architecture, it is important to develop and support the architecture on a standard enterprise architecture tool that can empower the bank to slice and dice risk information and enable tactical as well as strategic decision making. It will also enhance the progressive utility of ERM architecture by enabling greater ability to address newer regulatory and business changes. It is, however, essential for businesses to fully understand the critical success factors for developing an ERM architecture, which is capable of creating business value and enabling a more robust ERM adoption.

In this white paper, we discuss the key challenges in ERM in an increasingly dynamic and complex risk environment and how a business-driven ERM architecture can address some of these challenges to enable effective ERM adoption.