How Can Banks and Credit Unions Mitigate Risks?

Banks, credit unions, financial service providers, and other companies within the financial sector confront a variety of risks and vulnerabilities. Operational risks. Liquidity risks. Market risks. Credit and lending risks. Risks associated with legal and regulatory compliance. Technology and IT-related risks. Cybersecurity risks. Data governance risks. There is no shortage of threats in the financial space, where companies face all of the usual business risk factors plus a slew of threats that arise due to the high-risk nature of the banking and lending industry. 

Many of these risk management threats are inherent and unavoidable aspects of the financial industry’s business models. But that’s not to say that all of these vulnerabilities present a constant and very major threat. In fact, credit unions, banks, and other financial institutions can implement measures that can be very effective in mitigating risks and neutralizing the threats that are facing these companies. Of course, this begs the question: How do you mitigate risks in financial institutions in an efficient manner? What’s the best process and strategy for bank risk management? 

Understanding Your Financial Institution’s Risk Management Landscape With the Creation of a Task Force

Banks, credit unions, and other companies in the financial business space share many commonalities in terms of the threats that they face and their areas of vulnerability. But each financial institution has its own unique challenges too. All of these risk factors must be identified in order to mitigate risks in financial institutions. 

To gain a complete understanding of a company’s risk management landscape, you must call in leadership from all areas of the business to collaborate in the development of a risk mitigation profile. This task force will meet to develop a risk mitigation strategy and to oversee the execution of a risk mitigation plan of action. 

All departments and divisions must be represented in this process since leaders within these areas will have more granular insights into division-specific operations and more localized conditions. This information is essential for painting an accurate picture of a bank’s risk profile. These critical insights can easily elude company leadership since these individuals may only have the bandwidth to focus on the broader picture.  A risk management strategy requires collaboration amongst individuals who can offer insights from a granular, “localized” perspective and those with a broader, company-wide perspective. 

Identifying Risk Factors, Vulnerabilities, and Threats for the Creation of a Bank Risk Mitigation Strategy

After you’ve developed an accurate and detailed profile of the financial institution’s risk management landscape, it’s time to identify specific threats, vulnerabilities, and risk factors. The goal is to create a list of current or potential problem areas that will be addressed with a risk mitigation action plan. 

Common areas of vulnerability in a bank, credit union, or other financial services company can include the following. 

• Operations, processes, and workflows;
• Policies, procedures, and protocols;
• Regulatory compliance and legal compliance;
• Lending and liquidity-related practices; 
• IT infrastructure, hardware, and enterprise software;
• Data governance and data storage;
• Mobile apps and mobile devices; 
• ERP software, CRMs, and other enterprise technology;
• Third-party vendors and contractors; 
• Communication and messaging practices; and
• Security, encryption, and cybersecurity. 

These are just a few of the areas that a company must examine as they strive to mitigate risks in financial institutions. Once all potential problem areas are identified, exact threats, risks, and vulnerabilities must be pinpointed and the root cause identified. It can be helpful to identify existing problem areas or threats, along with areas of serious vulnerability. In the case of the latter, you may not currently have an active challenge, but it can be prudent to pursue mitigation efforts in cases of a high-risk vulnerability — situations where things can easily go south with the potential for serious adverse consequences.

Executing a Risk Mitigation Plan for a Credit Union or Bank

You’ve detailed the problem areas that exist within your financial institution and the bank’s new risk management task force has developed a list of to-dos that must be addressed in order to achieve an acceptable level of risk mitigation. Now, it’s time to implement that plan of action and an enterprise risk management software platform can be an invaluable tool for facilitating this part of the process. 

Risk management software solutions are designed to provide banks and other financial institutions with the tools, data, and resources they need in order to effectively document risk factors, threats, and areas of vulnerability. These enterprise software systems also include task management and collaboration tools that allow banks to create projects and assign tasks to specific individuals. These project management tools allow you to create a checklist of to-dos and assign these tasks to specific individuals, who can collaborate by posting updates and notes. This allows for easy management and monitoring of the tasks that must be completed in order to mitigate risks and neutralize threats. 

An enterprise risk management platform serves as a mission-critical tool for the long-term monitoring and oversight of threats and vulnerabilities. Risk mitigation is never a one-time gig; it’s a long-tail operation that requires continual monitoring. You must ensure that past issues do not recur, while also looking for new threats and areas of vulnerability. If a new challenge is identified, it must be evaluated and prioritized. Then, the issue will need to be reviewed by the risk management task force, which will be responsible for developing a plan of action. Also remember that your risk management task force must meet regularly to discuss current risks and prospective threats confronting the organization, its employees, its customers, and its interests.  

Risk management software also provides a centralized location for gathering essential data and metrics. This data can be useful for identifying, evaluating, prioritizing, and monitoring threats or vulnerabilities. Dashboards provide an eagle’s eye view of a bank’s risk landscape and many include real-time feeds with updates from regulatory bodies, financial industry news organizations, cybersecurity, and cybercrime watchdog groups, and other reliable sources that provide important updates on the topic of risk management and mitigation. 

Developing a Custom Enterprise Risk Management Software Platform

While an out-of-the-box risk management software solution may work for some banks, credit unions, and financial service providers, many can see a much greater benefit from the development of a customized enterprise solution. This sort of digital transformation project can bring a significant ROI with lots of strategic benefits. 

iTech takes a problem-and-solution approach to this sort of digital transformation project, including those involving risk management software systems. Our discovery process begins with the identification of a client’s unique risk management challenges and risk mitigation goals. Then, we use this information to guide the development of a one-of-a-kind strategy that will guide the creation of an enterprise solution. The iTech team strives to develop technology that solves problems, improves efficiency, and drives long-term profitability while simultaneously delivering a healthy ROI for the client. 

If you’re ready to develop and roll out your financial institution’s risk mitigation strategy, we invite you to connect with the iTech team today. Let’s begin a discussion to explore your bank’s risk management and risk mitigation plan so we can develop a winning digital transformation strategy for your financial institution.