Non-financial risks

Non-financial risks, such as operational, reputational and strategic risks, are becoming increasingly important in the banks’ risk map compared to more established financial risks. On the one hand, this is due to sometimes spectacular losses. On the other hand, this is because supervisory authorities and standard setters such as the ECB, EBA and BaFin are increasingly focusing on these risks in the assessment of risk-bearing capacity as well as in individual special audits.

Unifying methodologies across subcategories is key to achieving higher quality governance information as well as leveraging synergies. In the area of risk culture, as a fundamental prerequisite for better management of non-financial risks, specific questions regarding integration will soon arise due to the 5th MaRisk amendment.

The central success factor for this is a governance structure that operationalises the “3 Lines of Defence” concept. The large number of categories of non-financial risks and thus participants causes particular challenges in practical implementation. A great deal of attention must be paid to a strong first line of defence (business and support areas). However, an involvement of risk controlling in the first line of defence beyond standard setting and coaching should be avoided.

Risk strategy and appetite must be incorporated into corporate management at all levels as specific, objectively assessable target variables. Risk management for risk categories in the current regulatory focus (e.g. conduct risk, model risk) should be expanded. New freedoms resulting from the discontinuation of regulatory risk models (AMA) can be used to develop control-oriented models.

The timely identification of potential risk areas and the continuous development of risk frameworks are becoming increasingly important in view of the steadily growing relevance of the topic and possible loss areas. In order to achieve this, different analyses and methods can be used to ensure high-quality action management.

We will be happy to support you in all of the above. Contact us and benefit from our extensive experience in setting up or further developing future-proof and practicable non-financial risk frameworks – from suitable strategies and state-of-the-art governance to methods and processes.