Reviewing the industry trend to converge operational risk and compliance teams

Reviewing the industry trend to converge operational risk and compliance teams

 By James Wistman, Head of Brand Risk & Compliance/MRLO, Santander, Abbey National Treasury Services, US Branch

James, can you please tell the Risk Insights readers a little bit about yourself, your experiences and what your current professional focus is?

My college experiences were at University of Rochester & Columbia Business School, and much of my attention was focused on the logic of Monetarists, such as Milton Friedman; I wrote a honors thesis “End Runs Around Regulation.” My professional career opened with nearly 10 years of service to the Federal Reserve Bank of NY; “The Fed” is guided by public policy “first principles,” and it’s an especially interesting place in times of industry turmoil. Since leaving the Fed, I’ve had 20+ years on the front lines of Private Sector financial institutions; these firms are of course driven by the profit motive, which is predicated on competition and reliably providing service to communities and individual clients. The interplay or “frontier” of public policy and profit motive is as fascinating for me today as it was way back in college. To this end, Adam Smith wisely spoke of the “invisible hand;” his wisdom functions as the CPU of what many of us now call “the risk-based approach.” The risk-based approach can guide any firm closer to “pareto optimal” outcomes. Or, it can be thought of as the ship’s compass when sailing in a stormy sea.

What, for you, are the benefits of attending a Congress like the ‘Operational Risk Management USA Congress’?

The challenges we each face at work are very complicated, and they are highly dynamic; more so than ever before. The acceleration-of-change is our norm. To adapt with the times, one must attend conferences and webinars– and listen closely to others. Problem-solving today necessitates collaborative dialogue.

You will be participating in a panel discussion to review the industry trend to converge operational risk and compliance terms. What do you think will be the key talking points amongst panelists and why?

My hope is that we there is at least beneficial “overlap” if not full-throttle “convergence.” Professionals working in each of these risk disciplines, or “silos,” are often unaware of data sets already being mined by colleagues in the “other silo.” Conferences and panelists can share perspectives that help audience participants “see” efficiency gains when they return to their offices – some of these gains might otherwise remain unseen right under their own noses, so to speak.

In your opinion, are there any key benefits of converging operational risk and compliance teams? Certainly. We have to manage the shareholder’s capital and revenue streams responsibly; and that process is based on disciplined cost-versus-benefit analyses when managing the firm’s expenses. Budgets are finite, and each manager has to balance investments in people and technology so as to get the most productivity (aka bang) for the investment (aka buck). The risk-based approach is wholly consistent with cost-versus-benefit analytics.

How would you advise financial institutions best to begin the convergence process?

The most cost-effective thing to do is to listen VERY closely to what the examiners are saying when they visit the firm; the examiners often have a wealth of insight into the banana peels other firms have slipped on. The challenging part of the regulatory dialogue is that examiners tend to convey a blend of “rules-based” and “risk-based” constructs; meanwhile, those of us in the private sector tilt more toward “risk-based.” Thereto, it also helps read the headlines, and actually study the banana peels other firms have stepped on – because those slip-ups are often covered by the press. There is also a large set of professional Consultants in this arena, and we all know they can be pricey; however, the best amongst them are actually a bargain, because they can effectively help a firm avoid slipping on banana peels.

How do you see the risk landscape evolving over the next 6-12 months?

It’s exceedingly difficult to forecast any sort of evolution. Regulation tends to be “episodic evolution”, meaning it just isn’t a smooth continuum. We can say, however, that we’re all inside a new phase: we are seeing a “reversion to mean” in terms of the regulatory approaches before-and-after the shock of the GFC. Some call this phenomenon a “pendulum.” For example, I’ve recently read some very good law firm articles such as “Volcker Rule simplification” and “Supervisory Guidance is not a Basis for Enforcement Actions.” In addition to the public-policy “pendulum,” there is the “invisible hand” of competitive markets, which has led to the advent of Google and Amazon, along with the gigantic sets of Big Data that arise from digital commerce; also, we see coming straight at us the headlight of a fast-approaching freight train known as “AI.” {Note: I prefer Augmented Intelligence}. Very smart behavioral economists, along with many other social scientists, have long dreamt of having access to such data sets and the tools to study them – and now they do. We need to listen.

The views expressed are solely my own and do not necessarily reflect those of my current or prior employers.  I am responsible for any errors, omissions, and the like.


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