Listen to: "Prepare for the Increasingly Expanding Responsibilities of the Chief Risk Officer"
Who Is the Chief Risk Officer?
To kick things off, let’s take a look at the original and traditional role of Chief Risk Officer (CRO). The CRO was originally a key role within insurance companies, performing various risk-related duties in their respective specialized area. However, with the financial crisis of 2008, the CRO role has become increasingly utilized in the financial sector’s approach to Enterprise Risk Management (ERM).
According to the organization’s ERM, the CRO works to detect, pinpoint and manage any risk-related events on the horizon that may have an adverse effect on the company’s ability to achieve crucial strategic goals. He or she works to cultivate a holistic perspective on significant risk events that may hinder the achievement of important organizational objectives.
What Are the Basic Tasks and Responsibilities of a Chief Risk Officer?
The CRO’s primary tasks involve assessing and easing any significant regulatory, competitive and technological threats to the company’s capital and earnings. The core tasks for CROs vary, depending on the size of the business and the industry, but the most basic responsibilities and tasks include the following:
- Works under the guidance and supervision of the organization’s governance director.
- Develops and leads the implementation of an ERM for the entire organization.
- Monitors, assesses and mitigates risk on a daily basis.
- Maintains a risk register that reflects identified fraud schemes and applicable laws and regulations.
- Uses a variety of techniques, which include expert opinion and historical simulation, to quantify risk limits for the organization.
- Advises on whether or not the organization should supply capital to various projects, based on risk considerations.
- Manages communication with stakeholders regarding the risk profile of the organization.
There are some additional duties that a CRO may assume in his or her role, which include:
- Assists in the development and monitoring of mapped key risk indicators (KRIs).
- Identifies emerging risks that may present new money laundering, fraud and regulatory risks.
- Updates policies and procedures to make sure that everyone understands the risks at hand, how to identify them and how to proceed once identifying them.
What Does the Future Hold for the Chief Risk Officer?
Risk isn’t going away anytime soon, as you certainly know so well. The risks of doing business will only increase as we proceed well into the 21st century, due to a number of factors, which definitely include the growing importance of technology and global business relations. With those considerations in mind, the role of the CRO is only set to broaden in the next several years, and for the foreseeable and unforeseeable years thereafter, most likely.
Financial organizations are increasingly taking a broader view of risk. With that expansion, it only makes sense that businesses are preparing to place more responsibilities on the CRO’s shoulders.
Why Is the Role of the Chief Risk Officer Increasing So Greatly and Rapidly?
The reverberations of the 2008 financial crisis were so intense that they are still felt intensely today in the financial industry. Companies were determined to find a way to avoid repeating the decades’ worth of terrible mistakes rife within the mortgage industry that led up to the “housing bubble burst” that led to economic chaos and devastation for so many.
Regulators demanded greater transparency and accountability when it came to risk management. With that, the CRO has needed to develop greater objectivity to support his or her analysis and insights. The CRO must also think strategically, with the foresight to anticipate any potential risk-related disruptions and to influence the decision-making process.
Further, financial institutions face more overall risk than ever before, including the following:
- Credit risk
- Market risk
- Operational risk
- Liquidity risk
- Reputational risk
- Business risk
- Systemic risk
- Financial technology (FinTech) risk
The CRO must address these risks and so many others that address any possible exposure of the organization and its clients and stakeholders. He or she must examine any potential exposures and tailor solutions in areas that may include management and professional liability, property, casualty, cyber, benefits, health, environmental and talent.
Additionally, CROs will face an ever-increasing onslaught of new technologies, digitization and globalization with which he or she must contend. The same ERM principles will apply, but the landscape within which the CRO works will take on new dimensions.
What Future Responsibilities Can a Chief Risk Officer Expect to Take on in the Future?
While a CRO has always needed to possess strong analytical skills in order to comb through data to search for risks, negative and positive, he or she now needs a more comprehensive tool kit. CROs must combine their analytical talent with keenly developed strategic, commercial, leadership and communication skills in order to assess and mitigate risk and drive change within the organization. Most importantly, a CRO must be able to envision the big picture when it comes to risk and the health of the company.
Is Your Chief Risk Officer Ready for the Future of Risk Management?
Do you feel like your CRO is ready to take on the ever-increasing catalog of risks that could potentially harm your organization? If you feel like this key player could use some additional guidance—or maybe you need someone to fill this vital position—our I.S. Partners, LLC. ERM team can help.
We will work with you to determine all the necessary requirements, skills and talents for your current or future CRO to make sure he or she can help you stay on track to protect your business, clients and any other stakeholders.