Non-Financial Risk Management: Emerging stronger after Covid-19
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From lawsuits to models: Compliance risk and financial crime
Bernhard Gehra, Norbert Gittfried and Georg Lienke
Foreword
Preface
Introduction
Introduction to Part I: The origins of non-financial risk management
The complete history of operational risk regulation (abridged)
Financial institutions and non-financial risk: Learning from the corporate approach
The painful financial side of NFR
“Risk management is about managing risk” and “It’s all about people”: Psychology might be more important than models
The confusion of Babel: What’s in the name NFR – taxonomy
Introduction to Part II: Governance of non-financial risk management
“It’s the culture, stupid”: Risk culture as the key building block of NFR management – and why some banks have come through the Covid-19 pandemic better than others
Do you know who is who? Three lines of defence in the context of NFR
Herding cats? NFR divisions as truly diverse units
“Just do it!”: Partially self-organising governance structures for NFR frameworks
Introduction to Part III: Tools and instruments for non-financial risk management
A risk by any other name: Identification, classification and agendas
Old but gold? Mastering the RCSA despite Covid-19
Biases in scenario analyses and how to mitigate them
When scenarios are not severe enough: Stress testing for non-financial risk
Ending NFR in NFR: From Excel sheets to professional IT systems for NFR management
Breaking up with risk management: Using the power of controls for good not the prevention of evil
Introduction to Part IV: Focus areas of non-financial risk management
It won’t be over after Covid-19: Pandemics and operational resilience
Dealing with IT complexity and innovation: Delivering business resilience and customer outcomes
Protecting the new gold: Information security
Conduct risk and the impact of Covid-19
From lawsuits to models: Compliance risk and financial crime
Others are doing it cheaper: But can they really? Opportunities and risks in outsourcing
Managing reputation and stakeholders
Introduction to Part V: The future of non-financial risk management
ESG risk as a new (and very important) trigger for NFR
Looking into the crystal ball: What will NFR management look like in 2030?
This time will be different: An alternative future of NFR management
Right time, right place: The drive for change in operational and non-financial risk
Financial crime presents substantial risk to financial institutions and corporations, mainly due to the unpredictability of events, volume of underlying allegations, and the potential intensity of regulatory repercussion. This holds particularly true for financial institutions.11 This chapter will focus on financial institutions unless explicitly mentioning non-financial services providers, with most statements having similar validity for the non-financial sector. The main reason that regulatory scrutiny has intensified is that financial crime (ie, money laundering, terrorist financing, the violation of financial sanctions and embargos, bribery and corruption, and fraud) can have such a detrimental effect on the real economy. There is pressure on institutions to be on top of their game and find an operating model that reduces risk to a minimum. Where regulators launch investigations, pressure is ramped up even further. The best way to avoid negative eventualities is to get ahead of the curve. That means monitoring regulatory changes, building state-of-the-art target operating models, and putting in place the information technology capabilities to respond to the challenges in front
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