What is a Bank Branch Risk Assessment?
The hallmark of a healthy enterprise risk management (ERM) system is the ability to assess risk in a uniform fashion. This is especially true for financial institutions today, who must evaluate compliance risks (i.e. BSA/AML, FFIEC, etc.) more frequently than ever as a result of recently increased regulatory scrutiny and penalties.
If you’re a bank with multiple branches, each branch is representative of your entire bank ecosystem. You wouldn’t want the misstep of one to affect your entire organization’s reputation. That’s why it’s even more important to consider each of your branch risks as your own, and standardizing this process across the board can help streamline your procedures tremendously and set your entire business up for success.
Having a standardized, automated process in place sets you up repeatedly for annual risk assessments or risk assessments that are performed as a result of an event like a merger or acquisition. As a financial institution, taking a risk-based approach and standardizing your risk assessment program is also critical in identifying the overlapping activities that crowd your program, prioritizing actions and empowering your branches to make more informed decisions.
Bank Branch Risk Assessment Risks
Conducting branch risk assessments is an essential part of your ERM program. When your ERM program falls short, risks that once posed minimal threat to your organization can quickly snowball. Failure in critical ERM processes like risk assessments can lead to a rating downgrade or warning flag or business continuity failures and product liability issues.
Without a complete ERM program, you’ll be left without evidence to prove you were not negligent. Considering the fact that regulatory penalties, fines and shareholder value decline can add up, it’s important to for any financial institution to prevent risk management deficiencies wherever possible – and it all starts with better risk assessments. This will allow them to achieve regulatory compliance.
On a more immediate scale, failure in branch risk assessment can lead to the following consequences:
- Lack of Continuity: Changes in the organization or development of new business lines may result in new activities even though existing ones are more effective.
- Lack of Coordination: Often, activities apply to multiple risks or commitments across functional lines. The inability to formally tie activities to risk or commitments hinders inter-functional coordination, resulting in business silos and duplication of effort.
- Activity Fatigue: Staff may ignore certain activities because of a lack of time to assess them.
- Wasted Resources: If a risk changes, most branches would have no way of knowing how (or even if) these changes will affect their resources and activities.
- Activity Obsolescence: In a changing environment, there is no effective way to know when activities no longer apply.
- Lack of Prioritization: Picking activities to focus on is likely to be on an ad hoc basis and subject to the whims of current staff.