Proactive IT Risk Management in Banking Sector

Banks function in a dynamic operating environment marked by rising customer expectations, constantly changing economic landscape, widening scope and intensity of industry regulation, and leveraging technological innovation, while staying vigilant against evolving IT risks. Further, the success of the banking sector is contingent upon maximizing the shareholders’ wealth while controlling the financial health of the world economy with fairer practices amidst increasing transparency.

Therefore, supervisors and regulators have continued to propose measures for improving global banking practices, including governance and guidance for IT risk management as business functions performed by banks are underpinned by IT risks.

The scenario years after the recession

While the number of isolated incidents of one-time failures has come down, proactive IT risk management at most banking firms has stumbled. The failure can be largely attributed to inadequate risk information and a reactive IT risk culture, which is often difficult to reverse in large corporations. Not too long ago, the Wall Street Journal echoed the lack of effective IT risk management by stating, “Six years after the financial crisis, regulators remain concerned that banks lack insight into their own operations, including measuring risk and planning for a crisis.”

Financial institutions continue to be as risky as they used to be prior to the economic meltdown. Further, they are tasked with becoming effective to spur growth and forestall the chance of another economic slowdown. The heightened responsibilities are rendered complex due to the unprecedented regulatory reforms, market unease, bureaucratic barriers, reducing revenues, scarce capital, and increased spending, especially in IT infrastructure.

A Holistic Approach

The banking industry uses information technology risk management to manage its risk exposure by measuring, monitoring and mitigating the potential threats that are inseparably tied to its day-to-day operations. While most other functions within a banking institution – from core business operations to the management of securities portfolio – are limited to their own areas of work, technology risk is the common thread that permeates the operations within the entire corporation. Therefore, IT risk management in the banking sector should be addressed by adopting a holistic approach.

IT risk management in banking, as in most other financial sectors, involves not only the reduction of the probability of adverse occurrence but also increasing the likelihood of favorable development. Financial institutions now, more than ever, rely on information technology to spur growth by identifying opportunities. For information technology to play a pivotal role in business transformation and growth in the industry, proactive IT risk management approach should include the following:

Operations-driven IT strategy

As a part of operational risk management, IT risk functions in a financial institution need to revolve around seeking answers to some pertinent issues relevant to the enterprise.

They are:

• How is the organization’s vision tied to IT strategy?
• To what extent the existing IT capabilities can support in achieving the overall goals?
• How will future IT developments support to sustain the ongoing efforts?
• What role will technology play in closing any gap between expectation and achievement?

An objective analysis to identify the appropriate answers will help in building a holistic and an invisible framework for achieving the desired business objectives.

Improved IT spending

For a banking organization to significantly boost its operational efficiency, an essential prerequisite is to invest in a robust IT infrastructure. While an efficient IT framework will help counter challenges identified in effective IT risk assessments, a capable toolkit will help in the prevention of a security incident, a growing menace for the global financial sector. Research firms the world over are predicting increased IT spending in the financial sector, and the onus is on the individual institutions to allocate substantive funds for IT risk management and data infrastructure.

IDC projects the global financial sector risk information technologies and services spending to increase from $79 billion in 2013 to $97.3 billion by 2018. The sectors that are expected to contribute to the increased spending include credit risk, information/cyber security, and compliance and internal controls.

Compliance

The already-high cost of compliance coupled with the probability of penalties getting higher makes compliance a critical component in proactive IT risk management in the banking sector. Also banks can no longer afford to view regulatory compliance as a barrier because it has been established time and again that banks that embrace regulatory objectives with an integrated approach gain competitive advantage.

New regulations brought into effect following the financial crisis have made it tough for the banking sector. Complexities surrounding them may take long to ease. However, many banks have done well to refocus on growth by emphasizing on drawing business value from investment in regulatory compliance programs. Others need to focus on compliance priorities to steer their institutions ahead.

Being a critical enabler of business growth, IT risk management should be put at the forefront of banking innovation. Despite the challenges of product innovation, evolving market dynamics and changing regulatory requirements, flexible deployment of proactive IT risk management strategies in the banking sector can spur future developments.

Risk Management Studio is a risk management toolkit combining information security and technology risk management with business continuity planning for one easy to use solution. RM Studio is a turnkey deployment design that will immediately streamline the operational risk management for the implementation and maintenance of an effective and efficient ISMS, as well as meet the compliance requirements outlined in management standards such as ISO 27001:2013, NIST 800-53 and PCI DSS.