Given a longstanding practice by some financial insitutions to manage risk in silos, they may find themselves with an incomplete picture of their overall risks from an enterprise perspective. A better approach is to conceive of risk holistically, and to be understood as a single phenomenon in which all types of risks—credit risk, liquidity risk, etc.— influence one another in ways that change continuously over time. That’s according to regulatory risk expert Jeroen Van Doorsselaere with Wolters Kluwer Finance, Risk & Regulatory Reporting (FRR) writing in a recently issued white paper.
“A holistic risk management strategy executed with an integrated technological solution is a demonstrably simple and sensible approach for meeting business and regulatory demands, but many institutions continue to avoid it,” writes Van Doorsselaere, Vice President of Global Product & Platform Management for Wolters Kluwer FRR in his paper, “A Better Approach to Risk Management.”
“They will treat risk in general, along with its associated processes, models, calculations, analyses and decisions in response to them, in different ways depending on the context – compliance or business optimization,” he explains.
Assessing risk holistically, he writes, produces a more complete, accurate picture, and lets one derive more benefit from them because they provide “a truer depiction of the real world, where relationships among critical elements are complex and ever-changing and need to be considered at multiple levels of granularity, from the minute to the very large.
“A holistic approach to risk management gives institutions a fuller, more meaningful understanding of your activities and your operating environment and its risks,” explains Van Doorsselaere. “It allows you to respond to all your priorities, from compliance and reporting to business projections, such as for capital and liquidity planning, under multiple scenarios, to making short- and long-term decisions, when your need to act quickly, decisively and correctly is greatest.”
It is an approach, he adds, that is likely to be more cost-effective in the long term. too. “The right solution, one that presents the big picture in all its fine detail by supporting and amplifying the holistic conceptual framework, will be fully integrated, with a single repository of clean data drawn from all sources and available to all users for all purposes.”
Wolters Kluwer FRR, which is part of the company’s Governance, Risk & Compliance (GRC) division, is a global market leader in the provision of integrated regulatory compliance and reporting solutions. These solutions support regulated financial institutions in meeting their obligations to external regulators and their own boards of directors.
The company’s range of award-winning solutions includes OneSumX for Risk Management, which gives banks and financial institutions a better, more comprehensive and actionable way to measure, mitigate and manage financial and regulatory risk. It provides a holistic view across the risk types and allows for sophisticated scenario analysis and stress testing under both internal and regulatory metrics – all via a fully scalable, dedicated data management platform that provides analytics and reporting in a fraction of the time.