3. Enhancing financial risk management as a strategic response to shifting priorities
This year’s results indicate a notable shift in risk priorities for the next 12 months, driven by the rise of geopolitical risks and the increasing significance of non-financial threats, such as cybersecurity, climate change, and regulatory compliance. These factors have overshadowed traditional financial risks, which, for the first time in a decade, did not rank among the top 10 priorities. This shift can also be attributed to increased confidence in existing controls, following heightened scrutiny of financial risks in response to the events of Spring 2023.
Nevertheless, enhancing financial risk management measures remains a priority, even as non-financial risks take center stage this year. CROs recognize the ongoing importance of financial risks and are planning significant enhancements to their risk management strategies. Furthermore, the increasing emphasis on diverse, non-financial risks underscores the need for CROs to adopt a forward-looking approach and prioritize responsiveness.
In fact, CROs are acting on multiple fronts to prepare for potential downturns: nearly two-thirds (62%) are reducing the risk appetite or curtailing lending to certain high-risk industries and geographies, while more than half (56%) are tightening lending standards (e.g., reducing covenant-lite). Again, these forward-looking steps will allow banks to adapt quickly in the event of a slowdown.
CROs are planning other enhancements to financial risk management capabilities. Beyond more extensive risk measurement, stress testing and scenario analysis (cited by 52% of CROs), upgrading the risk technology and data modernization infrastructure is a priority for 51% of our respondents. Clearly, CROs are taking a “both/and” rather than an “either/or” approach to prepare for future evolution of financial risks.
CROs are also adopting forward-looking and proactive approaches to manage liquidity risk: stress testing, including severe but plausible scenarios, is the most important tool for managing liquidity risk, according to 77% of our respondents (and 83% of G-SIB CROs). This is followed by early warning indicators to detect emergent stress conditions, which was cited by 54% of our respondents (and 67% from G-SIBs).
4. Seeking new skills and talents
Though risk management is increasingly technology-enabled and data-driven, it remains highly reliant on human talent.
"To maintain their competitive position, banking CROs must prioritize both technology and talent; it’s not one or the other. Data shows that AI alone isn't enough; it's the human talent that complements it, ensuring rigorous risk management in an increasingly complex banking environment," says Nigel Moden, EY Global and EMEIA Banking and Capital Markets Leader.
That’s why CROs are aggressively looking to expand and diversify the talent base. Their top priorities for skills and talent include digital acumen (63%), followed by the ability to adapt in a changing risk environment (54%) and deeper specialization in at least one domain (51%).
