Global Risk Management

Global risk management
survey, 12th edition

A moving target: Refocusing risk and resiliency amidst
continued uncertainty
Deloitte Risk & Financial Advisory
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To learn more, visit Deloitte.com.
Contents
Foreword2
Executive summary 4
Introduction: The COVID-19 era 9
About the survey 11
Risk management governance 13
Management of individual risk types 26
Risk management technology and data 38
Sector risk topics 42
Conclusion47
Endnotes49
1
Global risk management survey, 12th edition
Foreword
O
N BEHALF OF the Deloitte member firms, I am pleased to present the 12th edition of The Global
Risk Management Survey, the latest installment in Deloitte’s ongoing assessment of the state of risk
management in the global financial services industry. The survey findings are based on the
responses of 57 financial services institutions around the world across multiple financial services sectors,
representing a total of US$27.2 trillion in aggregate assets. In addition, this report is based on in-depth
interviews conducted with a number of senior risk executives to gain deeper insight into the issues
highlighted in the survey. We wish to express our appreciation to all the survey and interview participants
for their time and insights.
The survey was conducted in an extraordinary period, as countries, businesses, and citizens around the
world were responding to the COVID-19 global pandemic. In an effort to contain the novel coronavirus,
governments across the globe imposed a series of lockdowns and other restrictions on economic activity;
even when permitted to open, many businesses either closed their operations voluntarily or had many
employees work remotely; and consumers quickly and dramatically changed their behavior and spending
patterns. The resulting sharp economic downturn and the changes to working practices had broad
implications for risk management.
With economies contracting and unemployment rising, credit risk rose significantly regarding lending both
to consumers and businesses. Many banks have allowed borrowers to defer payments or have offered loan
modifications, but they have also tightened credit standards for new lending.
Institutions have increased their focus on nonfinancial risks in recent years, and the COVID-19 pandemic
has further highlighted both their importance and the challenges they present. While most respondents
believed their institutions are extremely or very effective at managing financial risks, substantially fewer said
the same about nonfinancial risk types and aspects such as operational resilience, cybersecurity, and conduct
and culture, which have become more prominent in the COVID-19 period.
The pressure on revenues from the economic downturn has only increased the desire to reduce risk
management expenses, which have been growing continually since the global financial crisis. Institutions are
looking to the potential of emerging technologies to slash expenses by automating manual tasks while
simultaneously increasing the effectiveness of risk management by improving testing, reducing errors, and
identifying potential risk events before they occur, among other benefits.
Yet, while their potential benefits are clear, implementation of these technologies is proceeding slowly at
many institutions. One of the obstacles is that many institutions lack the comprehensive, high-quality risk
data that these technologies require, and more institutions are likely to increase their focus in this area.
Institutions reported that they have made progress in laying strong foundations for risk management
governance in such areas as having a board-approved risk management framework and risk appetite
2
A moving target: Refocusing risk and resiliency amidst continued uncertainty
statement, having a board risk committee with independent directors and risk management experts, having
an enterprise risk management (ERM) program in place, and employing the three lines of defense risk
governance model. Yet, challenges remain, especially in clearly defining the roles and responsibilities of the
first line (business units and functions) and second line (risk management) of the model, as well as ensuring
that the first line has access to the required risk management talent.
The COVID-19 pandemic has changed the environment for risk management. Uncertainty remained at the
close of 2020 as it was unclear how long the economic downturn would last and how long many employees
would continue to work remotely. With the COVID-19 era approaching the one-year mark, financial institutions
should focus on addressing such longer-term issues as maintaining morale, communicating their culture and
values, and continuing to foster innovation in an environment where employees are interacting virtually.
The disruption caused by COVID-19 presents financial institutions with an extraordinary set of new
challenges. Institutions will need strong risk management governance while having the agility and
willingness to rethink their traditional approaches in a fundamentally altered business environment.
We hope that this view of risk management at financial institutions around the world provides you with
helpful insights as you work to further enhance your organization’s risk management program.
Sincerely,
J.H. Caldwell
Global Financial Services Risk Advisory Leader
Partner, Deloitte & Touche LLP
3
Executive summary
I
N 2020, RISK management at financial • Conduct and compliance risk may increase
institutions faced challenges of a scale and scope since conversations with customers may not be
not seen in living memory as the world subject to the same level of controls, such as the
responded to a global health crisis caused by application of artificial intelligence (AI) and
COVID-19. The measures taken by governments, natural language processing technologies,
businesses, and consumers to restrain the spread which are designed to identify potential
of the virus triggered a sharp economic downturn instances of inappropriate behavior and lack of
and far-reaching social impacts. Although compliance with regulatory requirements.
promising results on the trials of several vaccines
were announced as the year drew to a close, the • Risk-aware culture is key to managing
numbers of cases and hospitalizations were again conduct risk, but this becomes more difficult if
rising rapidly. The outlook for 2021 and beyond employees are working remotely. Institutions
remains uncertain, depending largely on the ability should consider how they can create a sense of
to control the spread of COVID-19. community and engender their culture and
values as they hire new employees, who have
The Deloitte risk management survey was never met their colleagues in person either in
conducted from March through September 2020 the office or in social settings.
during unprecedented times globally. When asked
about the top trends that will increase the most in • Innovation is another concern. Will
importance for their institutions over the next two institutions be able to keep pace with
years, respondents most often named issues that innovation while working virtually for an
are inextricably linked in the current period: extended period? Institutions may need to
global financial crisis (48%) and global explore new approaches, such as virtual
pandemics (42%). innovation labs, recognizing that these may be
more difficult, especially at the outset, and may
The changed environment due to the pandemic has require different skills.
raised the importance of effectively managing a
number of key issues, especially nonfinancial risks: • Environment (including climate), social,
and governance risk (ESG) became more
• Operational resilience plans received a real- prominent in 2020, with widespread
life stress test as financial institutions suddenly demonstrations in favor of increased racial
instructed their employees to work from home. justice and equity and greater attention to the
broader social responsibilities of business.
• Cybersecurity has been a growing problem in
recent years and has increased further in the COVID-19 has also had direct financial impacts on
COVID-19 period with employees working on financial institutions. The economic contraction
devices that sit outside their institution’s significantly increased credit risk from both retail
firewall and being more subject to cyberattacks. and commercial customers, and many institutions
responded by tightening credit standards. In
4
addition, there may be greater potential for fraud One challenge for many institutions in
such as from misuse of customer data, invoicing for implementing digital risk management is a lack of
work not completed, or collusion with disreputable the comprehensive, timely, and high-quality risk
third parties. data these technologies require. The data
challenges have only grown in the COVID-19
The pressure on revenues is likely to intensify the period, with more data being generated from more
drive at many institutions to reduce ever- sources than before as employees work remotely.
increasing expenditures on risk management. One
promising approach is leveraging emerging Deloitte’s Global risk management survey, 12th
technologies—such as cognitive analytics, robotic edition is the latest edition in this ongoing survey
process automation (RPA), machine learning, series that assesses the industry’s risk management
natural language processing, and digital tools—to practices and the challenges it faces. The survey
cut expenses by automating manual tasks. But the was conducted from March to September 2020 and
benefits of so-called “digital risk management” go was completed by 57 financial institutions around
far beyond cost reduction to enhancing risk the world that operate in a range of financial
management effectiveness by reducing errors, sectors and with aggregate assets of $27.2 trillion.
improving controls, and identifying potential risk
events in real time so that preventive action can be
taken, among other benefits.
“The infrastructure works, so you can work from home.

But the behavior, of course, is very different if everyone
sits at home—you don’t see anyone, and you can only
communicate online. It’s a whole different atmosphere.
How do you work together as colleagues? How do you stay
effective? How do you ensure sufficient accountability?
How do you innovate and start new projects when
everyone is at home? I think that’s far more difficult.”
— Integrated Risk Manager, Major diversified financial services company
5
Key findings Continuing concerns over cybersecurity.

Institutions have faced cyberattacks for a number of
Increasing credit risk. Concerns over credit risk years, but the threat has only grown with many
typically peak during economic contractions and, employees working at home due to COVID-19.
not surprisingly, 20% of respondents named credit Thirty percent of respondents named cybersecurity
risk as the risk type that will increase the most in as one of the three risks that would increase the
importance for their institutions over the next two most in importance for their institutions over the
years, more than for any other risk type, compared next two years, the second most highly rated risk.
with only 3% in 2018. Sixty-two percent of Only 61% of respondents considered their
respondents said that credit risk measurement will institutions to be extremely or very effective at
be an extremely or very high priority for their managing cybersecurity risk, and 87% said that
institutions over the next two years with this being improving their ability to manage cybersecurity risk
further iterated during the interviews. Respondents will be an extremely or very high priority over the
said that many areas of credit risk management will next two years. Respondents most often considered
be extremely or very challenging for their staying ahead of changing business needs (e.g.,
institutions over the next two years, including social, mobile, analytics) (67%) to be extremely or
collateral valuation (48%), commercial credit very challenging in managing cybersecurity risk,
(48%), commercial real estate (43%), unsecured which may be due to the changes in working
credit (43%), and leveraged lending (41%). practices, the business environment, and consumer
behavior in 2020 There has also been keen
More focus on nonfinancial risks. Institutions competition for talent across all industries in this
have recognized that nonfinancial risk types can area, and 57% of respondents said that hiring or
have wide-ranging financial and reputation impacts. acquiring skilled cybersecurity talent is extremely
While almost all respondents rated their or very challenging.
institutions as extremely or very effective at
managing financial risks, the figure dropped to 65% Addressing risk from third parties. Third-
for nonfinancial risk overall and was even lower for party relationships present a distinctive set of risks
specific types and aspects of nonfinancial risk such including data privacy, nonperformance, unethical
as conduct and culture (55%), geopolitical (42%), conduct, and the loss of business continuity, and
and data quality (26%). Forty-four percent of have received increased attention from regulatory
institutions reported having a single individual who authorities. Only 44% of respondents rated their
is accountable for oversight of the general category institutions as extremely or very effective in
of nonfinancial risk. Many institutions have work to managing third-party risk, placing it 30th out of 33
do to enhance their capabilities in this area. No risk types assessed. Not surprisingly, 64% of
more than one-third of respondents said that respondents said improving management of risks
several methodologies for managing nonfinancial from third parties will be an extremely or very high
risk are extremely or very well developed at their priority over the next two years for their institutions.
institutions, including causal event analysis (33%),
scenario analysis (25%), risk and capital modeling Spotlight on environment, social, and
(25%), scorecards (23%), and external loss event governance risk. With growing concern over
data/database (21%). None of the respondents climate risk and increasing attention to the social
rated their institutions even this highly when it responsibility of business, ESG concerns—
came to use of alternative data such as including climate change—are receiving greater
unstructured data. attention from financial institutions. ESG was
named by 38% of respondents as being one of the
6
three risk types that will increase the most in management in their institutions’ risk
importance for their institutions over the next two management information technology systems.
years, more than for any other risk type. Yet, only
33% of respondents considered their institutions to “The impact of climate change is a top 10
be extremely or very effective at managing this risk. risk, both on us as an organization and on
Consistent with this result, 47% of respondents our clients as well.”
said it will be an extremely or very high priority for
— Head of Risk Management, Large diversified
their institutions to improve their ability to
financial services company
manage ESG risk. Institutions will need to monitor
carefully how expectations regarding ESG evolve Clarifying the three lines of defense model.
among regulators, investors, and customers. All the institutions surveyed reported using the
three lines of defense risk governance model, but
The potential for digital risk management. many reported significant challenges. The
There has been increasing recognition of the challenges cited most often concerned the
potential to leverage AI and digital technologies to responsibilities and capabilities of the first line,
reduce risk management expenses while such as getting buy-in from line 1 (business and
simultaneously boosting effectiveness. Fifty% of functions) (58%), defining the roles and
respondents reported that efficiency tools (such as responsibilities between line 1 (business and
RPA, cognitive intelligence, AI/machine learning) functions) and line 2 (risk management) (53%),
will be an extremely or very high priority for their executing first-line responsibilities (42%), and
institutions over the next two years. Yet, despite having sufficient skilled personnel in line 1 (39%).
their expected benefits, most institutions have not The business units and functions in line 1 should
yet implemented these technologies. Cloud own the risks they assume and have responsibility
computing (46%) was used most often, with fewer for enterprise control testing, yet only 33% of
institutions saying they use RPA (29%), machine respondents said this is embedded within business-
learning (27%), or cognitive analytics (13%). unit first line of defense, and only 34% of
respondents said that line 1 handles internal
Substantial challenges in risk data controls quality assurance.
management. Leveraging emerging technologies
requires comprehensive, high-quality, and timely Greater focus on stress testing. Large
risk data. But many institutions continue to face majorities of respondents reported that their
challenges in achieving this, especially for institutions employed stress tests for capital (83%)
nonfinancial risks. In this regard, most and for financial risks such as related to liquidity
respondents said their institutions found two (92%), market (81%), and credit (77%). However,
issues to be extremely or very challenging: regulators are now expanding stress tests to
maintaining reliable data to quantify nonfinancial include nonfinancial risks, such as climate, and
risk and drive risk-based decisions (74%) and only 38% of institutions reported conducting stress
ability to leverage and source alternative data tests for nonfinancial/operations risk.
such as unstructured data (74%). Notwithstanding
the fact that the Basel Committee’s principles for Continued progress on risk governance. At
effective risk data aggregation and risk reporting the level of the board of directors, 72% of
(BCBS 239) were issued in 2013, 49% of respondents said that one or more board
respondents said they are extremely or very committees are responsible for risk oversight,
concerned about risk data quality and which is a sign of progress in effective governance.
Eighty-seven% of institutions reported that their
7
board risk committees have independent directors, addition, the CRO is not always given the
and 82% said these committees have one or more appropriate authority to effect change. Seventy% of
identified risk management experts. respondents said the CRO reports to the CEO,
although one might have expected this to be
Universal adoption of the chief risk officer virtually universal, and 53% named the board of
(CRO) position. The percentage of institutions directors. Although 63% of respondents said a
with a CRO position or equivalent has increased responsibility of their boards of directors is to
over the course of Deloitte’s global risk conduct executive sessions with the CRO, the
management surveys, and all the institutions remaining institutions could benefit from adopting
participating in the current survey reported having this practice.
this position. Although the CRO is the highest level
of management responsible for risk management
at 70% of institutions, 21% named the CEO. In
“We understand that to serve clients and serve those

relationships, we need a much stronger, more digital
experience. Like virtually all major insurers, we are trying
to drive toward a more accelerated underwriting approach
that’s reliant on a broader set of data, so the decisions can
be made in minutes, not weeks.”
— VP Enterprise Risk Management, Major life insurance company
8
Introduction
The COVID-19 era
Economic environment Concerns over the global economy led to a flight to

safety for investors, with the 10-year US Treasury
In 2020, the COVID-19 global pandemic caused yield dropping from 1.9% at the beginning of 2020
far-reaching economic and social impacts. There to a yield of 0.7% on October 2, 2020.2
were already concerns about the economic outlook
at the beginning of 2020, but it’s safe to say that no Although the future course of COVID-19 is the
one anticipated a severe worldwide downturn principal uncertainty clouding the economic
triggered by a global pandemic. outlook for 2021 and beyond, there are others as
well. There remains significant geopolitical risk
In its October 2020 World Economic Outlook, the due to the ongoing US-China trade tension. For
International Monetary Fund predicted that world institutions operating in Europe, the end of the
economic activity would decline by 4.4% in 2020 Brexit transition period will have important
after growth of 2.8% in 2019.1 The contraction was impacts. Beginning in 2021, UK-based firms will
expected to be even greater in some major no longer have the automatic right to sell their
economic centers. GDP was predicted to contract financial services across the EU.3
by 4.3% in the United States, 8.3% in the Euro area,
9.8% in the United Kingdom, and 5.3% in Japan. “We expect to see more stress come
Economic growth in China was projected to remain through next year as the true impact of the
positive in 2020 at 1.9%, down from 6.1% in 2019. downturn really starts to hit our business.”
— Chief Risk Officer, Major diversified

Governments and monetary authorities responded
financial services firm
to the downturn triggered by COVID-19 with a
variety of initiatives designed to stimulate the
economy and stabilize financial markets. Regulatory response
In the second half of 2020, the world experienced a As of the beginning of 2020, the period of
K-shaped recovery, with some sectors and countries regulatory reform resulting from the global
posting rapid growth, while others continued to financial crisis in 2008 was drawing to its end, and
experience flat or negative growth. Some economic regulators were focused on implementing the final
sectors were especially hard hit, including travel elements. Given the economic downturn and
and tourism, hospitality, and commercial real market volatility caused by COVID-19, however,
estate. Others, like technology, have seen their regulators have postponed the implementation of
revenues increase as businesses and consumers various requirements.
relied more heavily on digital tools. Similarly, some
economies appeared to be recovering more quickly, On April 16, 2020, the European Central Bank
with the United States and China reporting strong announced a temporary reduction in capital
growth in the third quarter. requirements for market risk by allowing banks to
9
reduce the qualitative market risk multiplier.4 The pandemic is impacting both the size and nature of a
International Association of Insurance Supervisors range of financial and nonfinancial risks. The rapid
(IAIS) delayed the deadline for submitting data for economic downturn, coupled with abrupt changes
its review of the insurance capital standard. The in consumer and business behavior, may mean that
Basel Committee announced it would delay the models based on pre–COVID-19 data may no
implementation of the final phase of the Basel III longer accurately reflect the post–COVID-19 reality.
rules for one year. Some banking authorities have
gone further, with the US and Swiss authorities With COVID-19 case numbers continuing to rise
allowing banks to exclude sovereign bond rapidly in many countries around the world at the
exposures from their leverage ratios. 5
end of 2020, the prognosis for when companies
and economies would be able to return to a
As the pandemic continues, the focus of regulators semblance of normality remains unclear. The
is expected to shift from quickly responding to the extended duration of the crisis has blurred the
crisis to ensuring the medium-term resilience of lines between “business-as-usual” risk
financial institutions, including recovery and management and crisis management. Coming a
resolution planning, capital management, and decade after the global financial crisis, the COVID-
stress testing. 19 pandemic has raised the question of whether
severe disruptions often described as “once-in-a-
lifetime” events are now destined to recur every
The new environment decade or so.
for risk management
Financial institutions should remain vigilant and
proactively monitor how the ongoing COVID-19
“One of my biggest issues has actually been getting my

people to work less hard. We’ve provided an enormous
amount of focus on people’s mental health and people’s
physical health, you know, ergonomics. Making sure we’re
providing them with a working environment from home
where they can be safe and productive while ensuring they
don’t burn out.”
— Chief Risk Officer, Property and casualty insurance company
10
About the survey
T
HIS REPORT PRESENTS findings from the with most institutions headquartered in the United
12th edition of Deloitte’s ongoing assessment States/Canada, Europe, or Asia-Pacific (figure 1).
of risk management practices in the global Most of the survey participants are multinational
financial services industry. The survey gathered the institutions, with 67% having operations outside
views of CROs or their equivalents at 57 financial their home country.
services institutions around the world and was
conducted from March to September 2020. The participating institutions most often described
themselves as diversified financial institutions (44%)
The survey gathered the that provide a range of services, while smaller
views of CROs or their

percentages said their principal business was
insurance (19%), banking (16%), or investment
equivalents at 57 financial management (9%) (figure 2). When asked which

financial services they provide, substantial
services institutions around percentages of the participating institutions reported
the world representing a offering investment management (53%), banking

(51%), and insurance (33%) services (figure 2).
total of US$27.2 trillion in
aggregate assets. The institutions surveyed have total combined
assets of US$27.2 trillion and represent a range of
asset sizes (figure 3). Institutions that provide asset
The institutions participating in the survey management services have a total of US$16.1
represent the major economic regions of the world, trillion in assets under management.
11
FIGURE 1
The institutions participating in the global risk management survey represent

the major economic regions of the world
Participants by headquarters
37% North America

35% Asia Pacific
23% Europe
5% Other
Source: Deloitte Global Risk Management Survey, 12th ed.

Deloitte Insights | deloitte.com/insights
FIGURE 2
Participants by primary business

Participants by financial services provided
4%
Investment 44%
banking/securities Diversified financial
institution
9%
Investment
management
9%
Other financial
services activity
16%
Banking 19%
Insurance
Note: Percentages may not total to 100 due to rounding.

FIGURE 3
The institutions surveyed represent a range of asset sizes

Participants by asset size
47% 32% 21%

Less than
Greater than $10–100 billion $10 billion
$100 billion

12
Risk management governance
Role of the board of directors their periodic board-level risk management

reporting packages (figure 5). Monitoring
The central role of the board of directors in operational resilience has increased in
exercising effective oversight of risk management importance during the COVID-19 crisis.
has been a focus of attention from regulatory
authorities around the world. There have been a • Environmental, social, and governance
variety of regulatory initiatives focused on issues. Forty percent of institutions said that
corporate governance in general and in particular ESG updates (including climate) are included in
on the role and responsibilities of the board of risk reports to the board; it is likely that this
directors. Institutions that operate in multiple figure will grow over time.
jurisdictions will need to keep abreast of these
developments and the implications of differences in BOARD RISK COMMITTEES
the regulatory approaches adopted in each locality. It has become a preferred practice for the full board
of directors to delegate the primary responsibility
Eighty-two percent of respondents reported that for oversight of risk management to a board risk
their boards of directors are spending more time committee. However, this was the case at only 58%
on risk management compared with two years ago, of institutions participating in the survey.
including 27% who said they are spending
considerably more time. Regulatory authorities also expect risk committees
to include independent directors who possess risk
The survey identified notable observations in board management expertise and skills. Eighty-nine
risk oversight responsibilities and reporting percent of respondents said the risk committee of
(figure 4). their boards has independent directors, with 32%
saying the risk committee is composed entirely of
• Conduct risk and risk culture. Managing independent directors and 37% saying that a
conduct risk and creating a risk-aware culture majority of its members are independent directors.
have become areas of greater focus by An independent director chairs the board risk
regulators, and 70% of institutions reported committee at 86% of institutions.
that a board responsibility is to help establish
and embed the risk culture of the enterprise Having one or more risk management experts as
and promote open discussions regarding risk. members of the risk committee is becoming a
Yet, only 54% of institutions said that monitor regulatory expectation, which can pose challenges
conduct risk was a board responsibility, and for institutions to identify individuals with
44% cited review incentive compensation plans appropriate expertise. While 82% of respondents
to consider alignment of risks with rewards. reported that they have one or more identified
experts on the board committees overseeing risk
• Operational resilience. All institutions said management, the remaining institutions could
that operational resilience monitoring and benefit by also following this practice.
conduct and culture monitoring are included in
13
FIGURE 4
Which of the following risk oversight activities does your organization’s board
of directors or board risk committee(s) perform?
Base: Institutions at which risk management oversight is a board responsibility
Review and approve the organization’s formal

risk governance framework
93%
Review and approve overall risk management policy

and/or enterprise risk management (ERM) framework 87%
Approve the enterprise-level risk appetite statement 87%
Review regular risk management reports on the range of

85%
risks facing the organization
Monitor risk appetite utilization including financial
78%
and nonfinancial risk
Help establish and embed the risk culture of the
70%
enterprise; promote open discussions regarding risk
Review stress testing scenarios and results 67%
Monitor new and emerging risks 65%
Assess capital adequacy 63%
Review corporate strategy for alignment with

63%
the risk profile of the organization
Conduct executive sessions with chief risk officer 63%
Review individual risk management policies 57%
Review management’s steps to remediate any

noncompliance with risk management policy 56%
Monitor conduct risk 54%
Review/approve recovery resolution planning 52%
Define risk management reporting lines

50%
and independence
Review incentive compensation plans to consider 44%
alignment of risks with rewards
Review the charters of management-level
35%
risk committees
Other 6%
Note: Percentages total to more than 100% because respondents could make multiple selections.
14
FIGURE 5
Topics addressed in periodic board-level risk management reporting package

Base: Institutions with periodic risk management reporting to the board
Conduct and culture monitoring 100%
Operational resilience monitoring 100%
Risk executive summary 85%
Cyber risk updates 78%
Risk limits and metrics trend analysis 76%
Top risks 76%
Risk appetite utilization vs. risk appetite 75%
Stress testing results 73%
Risk assessment results 73%
Emerging risks 73%
Risk type dashboard 71%
Regulatory updates 67%
Risk program updates 65%
External risk environment 60%
Aggregated entity-level risk update 58%
Risk type updates 56%
Results of the risk identification process 56%
Regulatory capital utilization 55%
Issues tracking and management 49%
Business unit risk update 44%
Economic outlook 42%
Environmental, social, and governance

40%
updates (including climate)
Economic capital utilization 35%
Competitive analysis 16%
Note: Percentages total to more than 100% because respondents could make multiple selections.
15
Role of the CRO CRO is a board responsibility. These results suggest

that many institutions may be considering
Over the course of Deloitte’s global risk strengthening the position by elevating the CRO’s
management surveys, there has been continual reporting relationships.
progress toward meeting the regulatory
expectation that institutions have a CRO. For the As the CRO works closely with other C-suite
first time in our survey series, all the institutions executives to help them address the risks in their
participating said they have a CRO or an equivalent areas of responsibility, a strong level of mutual
position (figure 6). trust is key to success.
The CRO was reported to be the highest level of

management responsible for the risk management Responsibilities of
program at 70% of institutions, while 21% of the independent risk
institutions placed this responsibility with the CEO.
management function
There are benefits in having the CRO report both to There has been a trend for institutions to allocate
the CEO as well as the board of directors. more resources to risk management. Forty-five
Reporting directly to the CEO indicates the percent of respondents expected their institutions’
seniority of the CRO position, and reporting to the annual spending on risk management would
board of directors provides the board with an increase over the next two years, likely in response
independent assessment of the organization’s risk to the additional risks engendered by COVID-19.
management program and any issues it faces. Over time, however, there is likely to be pressure to
However, these reporting relationships are not constrain risk management budgets.
always in place.
A wide range of responsibilities is assigned to the
Seventy percent of institutions said the CRO risk management function at most institutions.
reports to the CEO. In addition, only 53% of Notably, 75% of institutions said that operational
respondents said the CRO reports to the board of resilience monitoring, is a responsibility of the risk
directors or a board-level committee,7 and 63% management group.
said that conducting executive sessions with the
FIGURE 6
Organizations with a chief risk officer or equivalent position

100%
92% 92% 95%
86% 89%
81% 84%
73%
65%
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

16
Striking the appropriate the overall corporate CRO). Over time, a better
balance between practice to migrate toward would be to have risk
management groups in business units and
centralization and
functions strengthen their reporting to the
decentralization corporate CRO, since this enhances independence.
Institutions need to decide to what extent risk
management activities should be centralized
across the organization, and to what extent they
Business units have had an
should be decentralized to individual business independent risk management
units, functions, and geographies. They also
need to decide how to strike an appropriate group embedded for a longer
balance for each of their specific risk
management activities.
time than functions, and
this was reflected in 40% of
Respondents were asked whether the business
units and functions at their institutions have
institutions reporting that
their own risk management functions led by business units have their own
business unit/functional CROs, or do they
instead rely on an enterprise-wide function.
independent risk management
Business units have had an independent risk group compared with 26%
management group embedded for a longer time
than functions, and this was reflected in 40% of for functions.
institutions reporting that business units have
their own independent risk management group Institutions also face the decision whether to
compared with 26% for functions. centralize responsibility across the organization for
each risk type (or “stripe”) or instead take a more
Regulators have encouraged institutions to decentralized approach. Almost all institutions
establish independent risk management groups at reported having a single individual responsible for
business units and more recently to extend this cybersecurity (91%), information security (89%),
practice to their functions. Over time, we would liquidity (87%), regulatory/compliance (87%),
expect more institutions, especially larger market (85%), and asset liability management
institutions, to follow this approach at their (84%) (figure 7).
business units and functions.
Third-party risk has received recent attention from
Among institutions that do have independent risk the regulators, and 58% of institutions reported
management groups within their business units or having a single individual responsible for risk
functions (or both), there was no consensus on oversight in this area. Regulators have also been
their reporting relationships. Forty-six percent said addressing conduct and culture, and 50% of
the business unit/functional CRO reports with a institutions reported having a single individual
solid line to the overall corporate CRO (sometimes responsible, up from 33% in 2018.
with a dotted line to the business unit or functional
head). Other institutions have adopted a more The results for two new risk stripes are notable. ESG
decentralized model, with 54% saying their CROs has become a greater concern of both regulators and
report with a solid line to the business unit/ business executives recently, as highlighted both
functional head (sometimes with a dotted line to during the interviews and in the survey with 52% of
17
institutions already reporting that a single become a topic for regulators, especially in Europe.
individual is accountable for risk oversight in this Forty-four percent of institutions reported that a
area. Nonfinancial risk is a broad risk category that single individual is accountable for oversight of this
encompasses specific risk types such as conduct, category across the enterprise. (See the section
cybersecurity, third party, and others, and has Nonfinancial risk below.)
FIGURE 7
For each of the following risk types, does your organization have a single
individual who is specifically accountable for risk oversight?
Percentage responding “yes”
Cybersecurity 91%
Information security 89%
Liquidity 87%
Regulatory/compliance 87%
Market 85%
Asset liability management 84%
Credit 78%
Insurance 77%
Operational 76%
Operational resilience 73%
Investment 72%
Model 63%
Third-party 58%
Environmental, social, and 52%

governance (including climate)
Strategic 52%
Reputational 51%
Conduct and culture 50%
Nonfinancial 44%

18
Enterprise risk management Among institutions that have an ERM program in

place or are currently implementing one, 96%
An enterprisewide risk management (ERM) reported that they have an ERM organizational
program has as its goal to put in place policies and unit. Among these institutions, however, only 67%
procedures designed to identify and manage risks said their ERM units have substantial risk
facing the institution. An ERM program helps to oversight and risk management responsibilities for
assess dependencies among the risks identified in the overall organization. Institutions where the
different businesses and geographies, create ERM unit has either only limited oversight and
consistency between the organization’s risk management responsibility or none at all could
utilization and its risk appetite, and assign clear benefit from expanding its authority.
responsibility for managing each risk.
On several issues, many institutions should
Eighty-four percent of the institutions reported consider expanding the level of interaction between
having an ERM program in place, similar to the risk management and other functional areas, one
percentage in the previous edition of the Global Risk such area being financial crime. Relatively few
Management Survey, with an additional 11% saying respondents said that there is an extremely or very
that they are currently implementing one (figure 8). high level of interaction with other functional areas
When respondents were asked to rate the overall on financial crime (54%); strategy (46%); or the
effectiveness of risk management, 75% considered emerging issue of ESG (32%).
their institution to be extremely or very effective.
In the current volatile environment, institutions
Although having an explicit ERM framework and should recalibrate their risk management
policy has become an accepted practice, it is far programs as they apply the lessons they have
from universal. Seventy-four percent of learned. Seventy-three percent of respondents said
respondents reported that their institutions have their institutions have either completed a risk
an ERM framework or policy approved by their management renewal/update, have one in progress,
boards of directors or an appropriate board or are planning to undertake one.
committee. Although it is important to have a
written ERM framework, it is preferable that it be
approved by the board or a board risk committee.
FIGURE 8
Does your organization have an enterprise risk management program

or equivalent?
Percentage responding “yes”
83% 84%
69% 73%
62%
52%
35% 36%
2006 2008 2010 2012 2014 2016 2018 2020

19
Risk governance and management expertise required, and their business

controls framework objectives and incentives may be focused on
business outcomes rather than risk management
metrics. In clearly defining the role of the first line,
THREE LINES OF DEFENSE RISK it is important to have the business units’ and/or
GOVERNANCE MODEL functions’ responsibilities in managing risk clearly
The three lines of defense governance model, communicated from the top, and to provide the
which details the appropriate roles in risk resources and talent required.
management of business units, functions, the risk
management program, and internal audit, has long
been a regulatory expectation and a prevailing Business units and
practice. The three lines of defense model
comprises the following components and
functions may not have the
summary roles: risk management expertise
• First line: Business units and functions own
required, and their business
and manage risks objectives and incentives
• Second line: Independent risk management may be focused on business
provides oversight and effective challenge outcomes rather than risk
• Third line: Internal audit function validates the management metrics.
effectiveness of the risk and control framework
While all the institutions surveyed reported using Most respondents said that risk management
the three lines of defense risk model, many said they within the business units and functions at their
face significant challenges regarding the first line: institutions is handled by business unit and
getting buy-in from line 1 (business and functions) functional management (56%).
(58%) and defining the roles and responsibilities
between line 1 (business and functions) and line 2 ENTERPRISE CONTROL FRAMEWORK
(risk management) (53%). When asked about their AND TESTING FUNCTION
priorities over the next two years, 49% of An enterprisewide internal controls framework
respondents said an extremely or very high priority undergirds effective risk management, and 77% of
will be transformation of the risk management respondents said their institutions have such a
operating model and providing greater assistance framework, although there was no consensus on
and coverage of the first line of defense. where this was located in their organizations. In
addition, 63% of respondents said that internal
Initial client regulatory exams indicate that controls optimization, simplification, and
regulators expect that the first line will take the coordination will be an extremely or very high
lead in owning and managing the risks they priority for their institutions over the next
assume, but this has not been easy to implement. two years.
Business units and functions may not have the risk
20
The business units should take the lead on internal by the board of directors, or are in the process of
controls quality assurance, but only 34% of developing one and seeking board approval.
respondents said this was the case. Instead,
respondents more often said that quality assurance Institutions most often reported that their risk
is handled by internal audit (68%), risk appetite statements and limits address risks at the
management (50%), or compliance (48%). Again, 8
corporate/enterprisewide level (86%).
internal audit and risk management may be Substantially fewer institutions said this is the case
handling what should be a first line responsibility at other levels such as business level (51%), risk
because business units lack the required resources stripe level (39%), material legal entity level
and expertise. (43%), or country/region level (31%). Institutions,
especially those with complex business
Again, internal audit and risk portfolios, would benefit by having their risk
appetite statements drill down to lower levels.
management may be handling
Regulators recommend that risk appetite
what should be a first line statements contain both quantitative and
responsibility because business qualitative statements, but only 38% of

institutions reported that their statements
units lack the required contain a roughly equal mix.
resources and expertise. There has been an increased focus on

nonfinancial risks, especially among regulators
and institutions in Europe, and the COVID-19
Risk appetite pandemic has only served to underscore their
importance. Yet, it can be difficult to develop risk
The importance of a written risk appetite statement appetite statements for nonfinancial risks, which
approved by the board of directors has received are difficult to quantify. Forty-nine percent of
increased attention from global regulatory respondents said their institutions find it to be
authorities. Regulators now expect risk appetite extremely or very challenging to define risk
statements to include nonfinancial risks, such as appetite for nonfinancial risk overall, while
cybersecurity and third-party risk, as well as substantial percentages said the same about
difficult-to-quantify risks, such as reputational risk. specific nonfinancial risks such as strategic (63%),
cybersecurity (47%), reputational (45%), and
Having a board-approved risk appetite statement conduct (40%) (figure 9). Many institutions will
has become a widely accepted practice. In the need to commit more time and effort to developing
current survey, 94% of respondents said their methodologies and techniques to assess their
institutions have a written enterprise-level appetite for nonfinancial risks.
statement of risk appetite that has been approved
21
FIGURE 9
How challenging is each of the following in defining and implementing your

organization’s enterprise-level risk appetite statement?
Base: Institutions with written enterprise-level statement of risk appetite
Percentage responding “extremely or very challenging”
Extremely/very challenging
Defining risk appetite for strategic risk 63%
Defining risk appetite for nonfinancial risk 49%
Defining risk appetite for cybersecurity risk 47%
Defining risk appetite for reputational risk 45%

Aligning risk appetite to the business strategy
43%
and planning process
Defining risk appetite for conduct risk 40%
Defining risk appetite for operational risk 35%
Defining risk appetite for model risk 33%
Gaining the active participation of business units in

32%
implementing the risk appetite and risk limits
Translating the risk appetite for individual risk types into
30%
quantitative risk limits
Allocating the risk appetite among different
30%
business units
Integrated risk appetite with stress testing, including
26%
defining risk appetite for stressed conditions
Defining risk appetite for third-party
21%
investment management
Defining risk appetite for concentration risks 17%
Complying with regulatory expectations

15%
regarding risk appetite
Defining risk appetite for liquidity risk 9%
Defining risk appetite for credit risk 7%
Defining risk appetite for market risk 7%

RISK IDENTIFICATION structuring and providing challenge to the process.

Identifying new and emerging risks is an essential Yet, only 40% of respondents said that this is the
element of an effective risk management program. approach at their institutions, while 38% said that
Since business units should have responsibility for risk identification is performed by the independent
the risks they assume, an accepted practice is for risk management function with input from the
business units to perform risk identification, with business units and functions.
the independent risk management function
22
Eighty-five percent of institutions reported and for financial risks such as liquidity (92%),
conducting risk identification at least annually, market (81%), and credit (77%). Although
with only 48% of institutions conducting risk regulators have widened their focus to include
identification quarterly or more often, which is nonfinancial risks in stress tests, only 38% of
preferable. Many institutions may benefit by institutions reported conducting stress tests for
conducting risk identification more frequently. nonfinancial/operational risk.
Regulatory authorities may expect at least an European regulators are also expanding the use of
annual risk identification, with quarterly updates stress testing for macroprudential policy by
for larger financial institutions. In part, the developing models that take into account interfirm
frequency should reflect the business profile of the contagion and adverse feedback loops between the
institution. Quarterly risk identification is financial sector and the real economy. In addition,
recommended for larger and more complex a number of European regulators have either
institutions operating in more dynamic areas, undertaken or are planning to develop climate
while monthly risk identification may be more related risk stress tests.
appropriate for those competing in especially
volatile lines of business or geographies. CAPITAL STRESS TESTS
The impacts on balance sheets of the economic
downturn in 2020 have underscored the
Asset liability management importance of capital stress tests. While the use of
capital stress tests was almost universal in the
Institutions are experienced in managing risk survey, institutions should consider whether these
related to asset liability management, and 80% of stress tests are sufficiently rigorous, employing
respondents said their intuitions are extremely or well-calibrated models and high-quality data.
very effective at managing this risk. The issue most
often considered to be extremely or very Among the institutions that reported using capital
challenging over the next two years was the ability stress tests, respondents said they most often used
to model on a dynamic basis the impact on net stress tests extensively for assessing the adequacy
interest income of changing interest rates and of regulatory capital (64%), reporting to the
changing balance sheet (38%). This may reflect the board (64%), and meeting regulatory
difficulty in modelling the impact of negative requirements and expectations (62%) (figure 10).
interest rates in certain locations. In addition, 33%
of institutions considered integrating the modeling LIQUIDITY STRESS TESTS
of interest rate risk in the banking book (IRRBB) Liquidity stress tests are also employed widely.
and credit risk within the banking book to stress Liquidity stress tests present special challenges
scenarios to be extremely or very challenging. such as incorporating intraday liquidity risk into
liquidity stress test assumptions, which was
considered to be extremely or very challenging by
Stress testing 39% of respondents (figure 11). Risk management
IT systems typically calculate end-of-day balances
Financial institutions and regulators have come to that do not necessarily reflect the liquidity position
rely more heavily on stress testing to assess at various times during the day. However, given
financial resilience and allocate capital to different the speed of financial markets, regulatory
businesses. Most respondents reported that their authorities are indicating that institutions need to
institutions employ stress tests for capital (83%) move to continuous liquidity monitoring.
23
FIGURE 10
To what extent are the results of capital stress tests used by your organization
for each of the following purposes?
Base: Institutions that perform capital stress tests
Extensively used Somewhat used
Assessing adequacy of regulatory capital 64% 33% 97%
Reporting to the board 64% 31% 95%
Meeting regulatory requirements

and expectations 62% 31% 93%
Reporting to senior management 56% 33% 89%
Defining/updating capital capacity

44% 44% 88%
requirements for risk
Understanding organization’s risk profile 38% 49% 87%
Strategy and business planning 29% 58% 87%
Assessing adequacy of economic capital 49% 38% 87%
Defining/updating risk appetite 38% 44% 82%
Assessing concentrations and setting limits 26% 54% 80%
Determining triggers for recovery plan actions 46% 32% 78%
Responding to rating agency inquiries 32% 43% 75%
Deciding on hedging and other risk

24% 50% 74%
mitigation strategies
Allocating capital to businesses and products 18% 53% 71%
Merger and acquisition decisions 14% 39% 53%
Pricing products or benefits 13% 32% 45%
Note: Some percentages may not total due to rounding.

24
FIGURE 11
How challenging is each of the following for your organization’s use of

liquidity stress testing?
Base: Institutions that perform liquidity stress tests
Extremely/very challenging Somewhat challenging
Implementing formal validation procedures and documentation standards for the models used in
liquidity stress testing
29% 48% 77%
Attracting and retaining risk management professionals with the required skills in liquidity
stress testing
26% 50% 76%
Liquidity stress testing IT platform

29% 45% 74%
Coordinating multiple functional areas and activities required to conduct liquidity stress tests
16% 51% 67%
Data quality and management for liquidity stress testing

36% 31% 67%
Incorporating intraday liquidity risk into your liquidity stress test assumptions
39% 27% 66%
Liquidity stress testing analytics

21% 43% 64%
Developing detailed documentation of the methodologies, processes, and procedures for

conducting liquidity stress test
17% 44% 61%

21% 43%
25
Management of
individual risk types
I
NSTITUTIONS HAVE LONG experience in exception of credit risk, respondents most often
managing financial risks, such are market, credit, expected nonfinancial risks to be those that
and liquidity, but in recent years they have increase the most in importance for
increased their attention to a variety of nonfinancial their institutions.
risks, which can have serious impacts but are more
difficult to measure and manage. Large majorities Risk management is also confronting a series of
of respondents said their institutions are extremely fundamental macrotrends. The top three cited
or very effective at managing traditional financial macrotrends that will increase in importance for
risks such as liquidity (89%), credit (85%), and respondents’ institutions over the next two years
market (82%) (figure 12). But they gave their were: global financial crisis (48%), global
institutions much lower ratings when it came to pandemics (42%), and credit quality deterioration
nonfinancial risks overall (65%) or specific (39%) (figure 13). Growth of digital customer
nonfinancial risks such as operational resilience platforms and intermediaries (38%) was also ranked
(64%), strategic (55%), geopolitical (42%), and by many respondents among the top three trends.
ESG (including climate) (33%). Yet, with the single
Institutions have long experience in managing financial

risks, such are market, credit, and liquidity, but in recent
years they have increased their attention to a variety of
nonfinancial risks, which can have serious impacts but are
more difficult to measure and manage.
26
FIGURE 12
Over the next two years, which three risk types do you think will increase the
most in their importance for your business?
Ranked #1 Ranked in top 3
Environmental, social, and governance 14%

(including climate) 38%
5%
Cybersecurity
30%
20%
Credit
29%
14%
Regulatory/compliance
27%
11%
Strategic
20%
Operational resilience 5%
18%
2%
Conduct and culture
14%
Reputation 4%
14%
0%
Third-party
11%
Data quality 2%
11%
4%
Market
11%
4%
Budgeting/financial
9%
Fraud 0%
7%
0%
Model
7%
4%
Nonfinancial
7%
0%
Operational
5%

27
FIGURE 13
Over the next two years, which three of the following emerging macrotrends
do you think will increase the most in their importance for your organization?
Ranked #1 Ranked in top 3
16%
Global financial crisis
48%
27%
Global pandemics
43%
13%
Credit quality deterioration
39%
Growth of digital customer 9%

platforms and intermediaries 38%
5%
Regulatory change
27%
Climate-related impacts 7%
20%
7%
Political uncertainty
20%
Changing client preferences 5%

20%
4%
Fee pressure
16%
Reputation risks 2%
13%
4%
Enterprisewide crisis events
9%
2%
Distribution relationships/channels
4%

Financial risk tightened credit standards in 2019 as many

economies were in the late stages of the credit cycle,
CREDIT RISK and the sharp economic downturn due to COVID-
The rapid economic contraction due to COVID-19 19 has only heightened those concerns.
has led to increased attention on managing credit
risk from lending to both consumers and An August 2020 analysis by Fitch Ratings found
businesses. Many institutions had already that rising credit risk costs at seven major
28
European financial institutions due to the that credit risk measurement will be an extremely
economic contraction caused by COVID-19 drove a or very high priority for their institutions over the
42% decline in their aggregate operating profit in next two years.
the second quarter of 2020 compared with the year
before, with credit costs skyrocketing by 430%.9 Yet, 86% of banking respondents said they believed
their institutions are extremely or very effective at
When asked to name the risks that they believed managing credit risk. When asked about the
would increase the most in importance for their challenges their institutions will face over the next
institutions over the next two years, respondents two years in specific areas related to credit risk,
most often named credit (20%) as number one, a more banking respondents said several areas
sharp increase from 3% in the previous edition of would be extremely or very challenging than in
the Global Risk Management Survey. The 2018: collateral valuation (48%, up from 25% in
increased importance of credit risk likely the result 2018), commercial credit (48%, up from 16%),
of the contraction in economic activity around the commercial real estate (43%, up from 31%),
world. Among banking respondents, this figure unsecured credit (43%, up from 20%), and
rose to 34%. In addition, 66% of banking leveraged lending (41%) (figure 14).10 With
respondents believed that credit quality commercial real estate, it is unclear to what extent
deterioration would be one of the three employees will return to the office or whether the
macrotrends that will increase the most in move to remote work will become permanent for
importance for their institutions over the next two many, reducing the demand for office space over
years, a higher percentage than for any other trend. the long term.
Seventy-seven percent of banking respondents said
“We decided not to lend money to new customers and

only maintain our existing relationships. Since then, I
think we’ve added only three new customers, very high-
grade credit customers and very selectively analyzed. Since
March, we’ve been conducting daily monitoring of our
drawdowns, daily monitoring of our customers, as well as
weekly updates with regard to our positions: asset quality,
potential downgrades, etc. So, credit has been monitored
intensely since March.”
— Chief Risk Officer, Major global bank
29
FIGURE 14
LIQUIDITY RISK
Challenges in managing credit risk Financial institutions should consider reviewing
over the next two years their procedures for managing liquidity risk in light
Base: Organizations that provide banking services of the recent economic contraction and volatility.11
Percentage responding “extremely or very
Among the issues that should be examined is
challenging”
whether liquidity risk management has sufficient
Extremely/very challenging visibility across the organization and robust
reporting capabilities. If required, institutions
should take steps to develop an accurate view of
48%
the projected cashflow and liquidity shortfall
across entities and businesses, and determine
48%
whether changes are needed to their liquidity
models and cash flow forecasts to more accurately
43% reflect current and projected conditions given the
COVID-19 crisis. Institutions should consider
43% reviewing their collateral management procedures
to assess whether they are adequate to meet the
challenges of determining the value, availability,
41%
and eligibility of collateral during the
ongoing pandemic.
33%
Almost all respondents believed their institutions are

extremely or very effective at managing liquidity risk
29%
(89%). Surprisingly, few respondents considered
specific issues related to liquidity risk management
29% to be challenging. For example, it is more difficult to
assess an institution’s liquidity position moment by
29% moment throughout each day, rather than at the end
of the day. Yet, only 21% of respondents said that
26% monitoring and managing intraday liquidity risks
will be extremely or very challenging for their
institution over the next two years.
26%
25%
Nonfinancial risk
Risk management has widened its focus in recent

22%
years to encompass a series of nonfinancial risks
including cybersecurity, third-party, ESG, and
21%
conduct and culture. Regulators are requiring
institutions to demonstrate the adequacy of their
19% risk management programs to manage these and
other nonfinancial risks.
Source: Deloitte Global Risk Management Survey,
12th ed.
30
Nonfinancial risk is different from other risk types, Most respondents said
since it is an overall umbrella category comprising
a variety of individual risk types. While many their institutions have
institutions rely on managing these risks
individually, there has been a trend, especially in
either adopted, or are in
Europe, for institutions to focus on nonfinancial the process of adopting,
risk as an overall category and appoint a leader to
oversee it across the organization. Forty-four
a nonfinancial risk
percent of respondents said their institutions have management approach for
a variety of areas.
taken this approach and have a single individual
who is specifically accountable for oversight of
nonfinancial risk.
FIGURE 15
Respondents were asked for which areas their How well developed is each of the
institutions have adopted a nonfinancial risk following nonfinancial/operational
management approach. Most respondents said
risk management methodologies at
their institutions have either adopted, or are in the
your organization?
process of adopting, a nonfinancial risk
management approach for a variety of areas Extremely/very well developed
including risk identification (87%), risk taxonomy

Risk assessments
categories (80%), overall risk management
90%
61%
framework (83%), risk reporting (78%),
regulatory reporting (69%), and risk management Incident reporting and internal loss event
data/database
organization structure (74%).
53%
Relatively few respondents considered various Key risk indicators

nonfinancial/operational risk methodologies at 46%
their institutions to be extremely or very well
Causal event analysis
developed. The two methodologies that were most
33%
often rated this highly were risk assessments (61%)
and incident reporting and internal loss event Scenario analysis
data/database (53%) (figure 15). Fewer 25%
respondents considered other methodologies to be Risk and capital modeling

extremely or very well developed at their 25%
institutions such as scenario analysis (25%), risk
Scorecards
and capital modeling (25%), scorecards (23%),
23%
and external loss event data/database (21%).
Notably, none of the respondents considered their Use of alternative data such as unstructured data
risk methodologies to be extremely or very well 23%
developed when it came to use of alternative data
External loss event data/database
such as unstructured data. 21%
Source: Deloitte Global Risk Management Survey,

12th ed.
31
CYBERSECURITY business needs (e.g., social, mobile, analytics)

Managing cyber threats is a major priority for (67%) (figure 16). With companies across all
financial institutions, and regulatory authorities industries working to protect their operations
around the world continue to make cybersecurity against hackers and other cyber threats, there has
an important focus. A 2018 International Monetary been fierce competition for cybersecurity talent, not
Fund (IMF) analysis of potential losses due to only with other financial services institutions but
cyberattacks in 50 countries found that the annual also with companies in technology and other
losses to financial institutions could reach US$270 industries. As a result, 57% of respondents said that
billion to US$350 billion in a severe scenario, hiring or acquiring skilled cybersecurity talent is
almost half of banks’ net income, and could have extremely or very challenging.
systemic impacts on the financial system.12
The threat has only grown with many

Eighty-seven percent of
employees working remotely due to COVID-19. respondents said it will be an
One study found that cyberattacks against
major US financial institutions increased extremely or very high priority
substantially between February and April
2020.13 In April 2020, the New York
for their institutions over the
Department of Financial Services issued new next two years to improve
guidance in light of a significant increase in
cybercrime related to the COVID-19 outbreak.14
their ability to manage
cybersecurity risks, a higher
Companies remain intensely focused on
cybersecurity. Eighty-seven percent of
percentage than for any of the
respondents said it will be an extremely or very other 16 potential priorities.
high priority for their institutions over the next
two years to improve their ability to manage
cybersecurity risks, a higher percentage than for “There are a lot of online frauds, phishing,
any of the other 16 potential priorities. Only 61% of and spoofing kinds of cyber tricks to get
respondents believed their institutions are our clients to transfer money on their cell
extremely or very effective at managing phones. But if money goes out of their
cybersecurity risk overall. account, they will of course look at the
bank. Cyber risk is also targeting the bank
Institutions face multiple challenges in safeguarding as all our employees are working from
themselves against continuously evolving cyber home. So we see a big spike in efforts to
threats. Given the volatility in the business directly target the bank.”
environment and changing consumer behavior,
— Integrated Risk Manager, Major diversified
respondents most often considered as extremely or
very challenging staying ahead of changing
32
FIGURE 16
In your opinion, how challenging is each of the following for your organization
in managing cybersecurity risk?
Extremely/very challenging
67%
57%
90%
53%
40%
39%
37%
35%
24%
18%
14%

resiliency should include the impact of third-party

THIRD-PARTY RISK relationships. An additional challenge is to gain
Effective management of third-party risk is a basic insight into and manage the additional risk created
regulatory expectation, and regulators have made it by fourth-party relationships, when an institution’s
clear that financial institutions remain responsible third-party service providers in turn pass some of
for the actions of their vendors. Third-party the work to additional subcontractors.
relationships present distinctive challenges since
institutions must strive to have their vendors Only 44% of respondents considered their
achieve a similar level of rigor in their risk institution to be extremely or very effective in
management processes, such as in cybersecurity or managing risks from third-party service providers,
operational resilience, as aimed for by the which was 30th out of 33 risk types. Respondents
institution itself. Effectively managing third-party most often considered their institutions to be
risk requires standardized processes that are extremely or very effective at managing financial
integrated with tools and data, aligned with risk (59%) related to third parties. Fewer
proactive decision-making capabilities, and respondents rated their institutions this highly when
supported by analytics. Formal assessments of it came to other third-party risks such as resilience
33
and continuity (48%), performance and operations clear roles and responsibilities are foundational
(46%), and reputation (43%). steps that every institution should take.
Consistent with this low self-assessment, 64% of “We just had a spate of ransomware attacks
respondents said that it is an extremely or very high against our vendor supply chain. Now
priority for their institution over the next two years we’re talking about how we can be more
to improve third-party risk management. Many proactive with our vendors. Can we actively
institutions reported they had not yet established share indicators of compromise? Can we
many basic aspects of a program to manage third- do special assessments to make sure we
party risk, although more institutions said they are know what certain threat actors are doing
in progress of implementing them. For example, and that our vendors are well prepared,
67% of institutions said they had established above and beyond the annual due
standard contract language and service-level diligence that we do on them?”
agreements (SLAs), while an additional 22% said
— Chief Risk Officer, Investment
this is in progress (figure 17). Having standard
management firm
contract language in place with SLAs and having
FIGURE 17
When managing risk from third parties, which of the following has your
organization established as part of your program?
Very well/recently established In progress
67% 29% 96%
60% 35% 95%

90%
53% 39% 92%
60% 30% 90%
67% 22% 89%
52% 33% 85%
51% 33% 84%

33%
51% 32% 83%
35% 42% 77%

42%
34
REGULATORY RISK especially more pronounced in a period of weak

Even more than 10 years after the global financial economic conditions, could lead more institutions
crisis, which triggered a blizzard of regulatory to leverage technology solutions, such as RPA and
developments, financial institutions continue to AI applications, in order to increase efficiency and
face an array of evolving regulatory requirements reduce risk management costs.
addressing such issues as capital adequacy, data
governance, cybersecurity, and third-party risk, IBOR transition
among others. Although there have been
indications that the pace of regulatory change has Institutions are under pressure as the target date
slowed, 94% of respondents expected that the for cessation of interbank offer rates (IBORs) in
regulatory requirements on their institutions new contracts (end of 2021 for most cases)
would increase over the next two years, with 31% approaches. While relatively few respondents
expecting a significant increase. These figures are expected that IBOR transition would be especially
similar to those in 2018, which may reflect the challenging, they may have underestimated the
many regulatory changes that remain to be work required and would be well advised to
implemented fully, and indicates that the prepare for the transition. For example, only 24%
respondents did not expect the pace of regulatory considered technology/applications updates and
change to slacken. development to be extremely or very challenging,
while 22% said the same about processes and
Given the ongoing regulatory focus on the security controls updates and development. Yet, it can be
of IT systems and the continued threat of challenging to identify all the systems that can
cyberattacks, respondents most often said they are make the detailed calculations that reference the
extremely or very concerned about the impact on London Interbank Offered Rate along with the
their institutions of supervisory or regulatory required changes.
processes in the area of cybersecurity (54%)
(figure 18). The area cited next most often was the
general concern regarding standards or
regulations that will raise the cost of doing
business (49%). This concern, which may become
35
FIGURE 18
Over the next two years, how concerned are you about the potential impact
on your organization of each of the following regarding supervisory and
regulatory processes?
Extremely/very likely
54%
49%
44%
37%
36%
35%
33%
31%
31%
30%
27%
26%
23%
21%
18%
9%

36
ENVIRONMENT, SOCIAL, AND CONDUCT AND CULTURE

GOVERNANCE RISK Managing conduct risk and establishing a risk-
ESG is a nonfinancial risk type that is receiving aware culture have become more important in
increasing attention from institutions and their recent years due to well-publicized instances of
regulators. Institutions will need to become ready to inappropriate business conduct and practices that
meet the evolving regulatory requirements in this have resulted in regulatory fines and reputational
area. For example, the Bank of England plans to run damage for prominent institutions.
its first stress test exercise for climate risk in 2021 as
its biennial exploratory scenario.15 In October 2020, Conduct risk has also received attention from the
the European Insurance and Occupational Pensions regulators. A key development was the final report
Authority (EIOPA) published a consultation on the of Australia’s Royal Commission into misconduct
use of climate risks scenarios in the Own Risk and in the banking, superannuation, and financial
Solvency Assessment.16 services industry, which was released in February
2019.17 The report issued principles of good
This risk was named by 38% of respondents as being conduct for institutions and has sparked greater
among the three risk types that would increase the attention on conduct and culture among regulatory
most in importance for their institutions over the authorities in Asia Pacific and beyond. Monitoring
next two years, more than for any other risk type conduct and engendering an appropriate culture
(figure 12). In addition, 37% of respondents were have become even more difficult than before since
extremely or very concerned about the potential most employees are now working remotely.
impact on their institutions of new regulatory
requirements in this area. As a result, 47% of Only 55% of respondents considered their
respondents said that it is an extremely or very high institutions to be extremely or very effective at
priority over the next two years for their institutions managing conduct and culture risk, and 40% said
to improve their capabilities in managing ESG. it is extremely or very challenging to define and
implement their risk appetite statement in this
“Climate risk has a lot of focus in our area. As a result, many respondents said that
scenario analysis to get better insights in establishing and embedding the risk culture
where the sensitivities of physical and across the enterprise (61%) will be extremely or
transition risks are. This gives us better very high priorities for their institutions over the
insight on what it means for our climate next two years. Among institutions that have
risk strategy and climate risk management completed or undertaken a risk management
capabilities. ESG is clearly a top 5 risk renewal program, 76% said that focus on conduct
priority for us.” risk and risk culture is an extremely or very high
priority of their renewal programs.
— Integrated Risk Manager, Major diversified
37
Risk management
technology and data
Digital risk management technologies can create. Failures of automated

processes could have even deeper and more extensive
Institutions have recognized the potential of the impacts than would result from a problem in a
latest technologies—such as cognitive analytics, manual process. Machine learning systems, where
RPA, machine learning, natural language the application learns and makes individual decisions
processing, and digital tools—to drive down risk on its own rather than being explicitly programmed,
management costs. The economic downturn in have the potential to create inadvertent bias, rogue
2020 triggered by COVID-19 has placed pressure programs, or inaccurate results.
on revenues and only served to strengthen the
desire to increase efficiency. Fifty percent of COVID-19 has created further challenges. With
respondents said that efficiency tools (such as RPA, economic and business conditions having changed
cognitive intelligence, AI/machine learning) will abruptly, machine learning models, such as fraud
be an extremely or very high priority for their detection models, which had been trained on pre–
institutions over the next two years. COVID-19 data may have “learned” to identify data
patterns and correlations that no longer accurately
Yet, relatively few institutions reported employing predict future outcomes. In many cases,
these tools currently. Respondents most often said institutions may have to retrain and revalidate
their institutions use cloud computing (46%), with their models.
fewer saying they use RPA (29%), machine learning
(27%), or cognitive analytics (13%) (figure 19). The regulatory implications must also be addressed
as new requirements and guidance are put in place.
While these technologies can reduce operating AI applications powered by machine learning can
costs by automating manual processes, their be “black boxes,” where decisions based on
benefits go far beyond cost reduction to offer personal data cannot be explained. This can create
substantial improvements in effectiveness and issues with respect to legislative (e.g., General Data
quality. Among many potential applications, they Protection Regulation [GDPR] in the European
can be leveraged to build controls directly into Union) and regulatory requirements. The Bank of
processes, prioritize areas for testing and Japan investigated the legal issues stemming from
monitoring, allow all transactions to be reviewed the use of black-box algorithms in investment
rather than relying on sample testing, and identify management and concluded that existing
potential risk events in real time to allow legislation will need to be adjusted to reflect the
preventive action to be taken. By automating unique nature of AI.18
routine tasks, they can also free employees to work
on higher-value activities. Institutions will need to demonstrate to regulators
and the public that their model risk management
Even as they work to capture these benefits, frameworks have been enhanced to be able to
institutions need to manage the additional risks these identify and manage these risks in their IT systems
38
as well as broader data ethics implications. Risk IT systems and

Regulators will expect institutions to establish clear data management
risk appetite frameworks and parameters that
encompass risks related to AI systems and put in To take advantage of the latest technologies
place effective controls. This will be especially requires risk data that is accurate, comprehensive,
important for material models such as those used and timely. This is lacking in many institutions due
for risk and regulatory capital calculations or that to multiple legacy IT systems for different lines of
drive consumer outcomes. Institutions will need to business or geographic markets, often the result of
build teams of risk professionals across the three a series of past acquisitions that were never
lines of defense with the required AI skills fully integrated.
and experience.
BCBS 239, which was released in 2013 for
“More has happened on the digital front in implementation by global systemically important
the first four months of COVID-19 than in banks, has provided a benchmark against which
the previous decade. We feel our regulators around the world are measuring the
competition is going to really accelerate adequacy of risk data programs within the financial
here, and this is a key focus for us.” sector more generally. While the industry has
made strides, institutions will need to have in place
— Chief Risk Officer, Large bank
a process of continuous improvement so they can
quickly respond to increasing data requirements
and maintain the comprehensive, high-quality data
FIGURE 19
needed to manage risk. Some institutions are
Does your organization use or establishing central data offices led by a chief data
plan to use any of the following officer (CDO), which set data quality standards,
emerging technologies in the risk monitor data quality across the institution, and
management function? develop models for firmwide data infrastructure.
Other approaches that can yield benefits including
Currently use Plan to use
identifying the lineage (i.e., the original sources of
Cloud computing 90% information) of data used for reporting and
46% 39% 85% decision-making, and conducting independent
85% assessments of the risk to the institution of poor
Big data and analytics
35% 42% 77% data quality to determine where enhanced controls
should be applied and to prioritize data
Robotic process automation 84%
remediation efforts.
29% 42% 71%
Machine learning 82% Most institutions recognize that they have more
27% 38% 65% work to do to improve data management. Sixty-nine
80%
percent of respondents said that enhancing the
Cognitive analytics
quality, availability, and timeliness of risk data will
13% 39% 52%
be an extremely or very high priority for their
Source: Deloitte Global Risk Management Survey, institution over the next two years. Only about one-
12th ed. quarter of respondents believed their institutions
are extremely or very effective at managing data
39
quality (26%), data management key performance across risks is to move away from
and risk indicators (24%), and data standards qualitative assessments to be more data
(27%) (figure 20). And just 8% of respondents and scenario driven. The shift was
considered their institution to be this effective at use underway but has been accelerated with
and management of unstructured data. increased focus and governance during the
pandemic. Financial risks are further
“Data-driven risk management has become ahead but operational risk is moving
a big evolution in our risk management rapidly in that direction.”
practices. Across the board, the trend
— VP Enterprise Risk, Large financial institution
FIGURE 20
How effective do you think your organization is in each of the following

aspects of risk data strategy and infrastructure?
Extremely/very effective
Data privacy
90% 60%
Data governance
33%
Data controls/checks
31%
Data management (KPIs and KRIs)

27%
Data standards
27%
Data quality
26%
Data sourcing strategy

26%
Data transparency and lineage

25%
Data architecture
24%
Data management/maintenance
24%
Use and management of unstructured data

8%

40
Data privacy guidance and regulations (such as BCBS 239,

GDPR, and the California Consumer Privacy Act),
When asked about risk data strategy at their 39% of respondents said their institutions have
institutions, the only area where a majority of fully implemented and tested capabilities required
respondents rated their institutions as extremely or to comply, while an additional 32% said they had
very effective was data privacy (60%). The high implemented but not yet tested their capabilities.
rating for data privacy may be overly optimistic Although GDPR is fairly recent, BCBS 239 has been
since only 31% considered their institutions to be in existence since 2013. These results indicate that
extremely or very effective at data controls/checks, many institutions need to increase their pace of
which are required to safeguard data privacy. In implementation. In addition, the fact that most
addition, 63% of respondents said that data institutions have not yet fully implemented and
privacy, protection, and risk management will be tested their capabilities to comply with these
an extremely or very high priority for their requirements is another indication that many
institutions over the next two years. respondents may be giving their institutions overly
positive ratings regarding their effectiveness in
This is probably due to the intense focus on this issue safeguarding data privacy.
by regulators. The European Union’s GDPR, which
took effect in May 2018, placed data protection “Data loss is something that we’re very
requirements on all institutions that hold the data of focused on. One of the outcomes of people
EU citizens, even if they are headquartered working from home is you’re more
elsewhere, including the need to obtain consumer exposed to data loss. We’ve had a rising
consent before collecting personal data, among other incidence there, but we’ve been able to put
provisions. In the United States, California’s in place appropriate prevention and
Consumer Privacy Act has led to other states also detection controls. We’re certainly alert to
enacting data privacy and security legislation. Many some of the confidentiality risks that occur.
other countries have done so as well. How do you manage control of data?”
— Chief Risk Officer, Diversified financial

When asked whether their institutions have
services firm
implemented and tested their capabilities to
comply with data governance and management
41
Sector risk topics
Banking Investment management
For banking institutions in the United States, there Although the economic downturn triggered by
has been a trend toward aligning regulatory COVID-19 created additional market volatility,
requirements more closely to the complexity of the investment management respondents rated their
bank. The Federal Reserve’s revised enhanced firms highly in managing this risk. Eighty-six
prudential standards for domestic and foreign percent of respondents at firms that provide
holding companies fine-tuned many requirements investment management services believed their
based on financial metrics that serve as a proxy for organizations are extremely or very effective at
an institution’s size, complexity, managing market risk.
interconnectedness, and systemic importance.
These efforts were driven by a concern that the These respondents were asked how challenging a
requirements as initially written did not range of issues were for their investment
appropriately balance the tradeoff between safety management business, and relatively few
and soundness and burden, especially for smaller, respondents considered any issue to be especially
less complex banks.19 challenging. The two issues most often rated as
extremely or very challenging related to data: data
In Europe, even before the slowdown in economic management and availability (30%), and use of
activity due to the COVID-19 pandemic, some banks alternative and unstructured data in investment
faced an expected capital shortfall from the and operational processes (e.g., crowdsourcing,
implementation of the finalized Basel III geospatial, cognitive analytics) (30%).
standards. In March 2020, the Basel Committee
20
announced that it would delay the implementation Respondents reported that a variety of roles and
of the final phase of the Basel III rules by one year, responsibilities are assigned to the individual or
to January 1, 2023, to help ease the imposition of individuals responsible for managing risk in their
higher capital constraints that some banks could investment management function, most often
have faced during the ongoing economic recession.21 citing monitor compliance with investment
guidelines related to investment risk (e.g.,
Although the implementation has been delayed, tracking error, sector/industry exposures) (80%).
banks should continue their efforts to prepare to
implement the Basel Committee’s revisions to its Other responsibilities that were cited by a majority
capital requirements for market risk, known as the of respondents included developing and
Fundamental Review of the Trading Book (FRTB). implementing the investment risk management
When asked about the status of their institution’s framework, methodologies, standards, policies,
implementation of FRTB, only 5% of respondent and limits (75%); meeting regularly with
institutions subject to FRTB said they were governance committees responsible for overseeing
already fully FRTB compliant, while 53% said investment risk management (75%); periodic
implementation was in progress. reassessment of investment risk to identify risk
concentrations and potential style drifts (65%);
42
and managing the stress-testing process, Continuous monitoring was only reported by
including governance, methodology, and roughly 20% of institutions or less for the different
reporting (60%). types of vendors, with the single exception of
intermediaries (27%). Over time, we may see more
THIRD-PARTY OVERSIGHT institutions move to continuous monitoring for
Managing third-party risk is an issue for all certain categories of vendors, such as administrators.
institutions but it is especially important for those
providing investment management services, which DATA AND ANALYTICS
often rely heavily on third-party vendors. These Relatively few respondents providing investment
institutions often outsource day-to-day management services rated issues regarding IT
management of client investments to investment systems and data as extremely or very challenging
subadvisers, and employ service providers for for their investment management business, with
technology applications, data management, and this being most common for data management
operational aspects. Only 15% of respondents at and availability (30%), use of alternative and
institutions providing investment management unstructured data in investment and operational
services rated oversight over third-party processes (e.g., crowdsourcing, geospatial,
managers, service providers, and suppliers as cognitive analytics) (30%), and IT applications
being extremely or very challenging for their and systems (technology) (25%).
organization’s investment management business.
Firms providing investment management services
Conducting ongoing monitoring to review the risks are increasingly recognizing the potential of
from third-party relationships is an important emerging technologies such as RPA, cognitive
element of effective risk management. Respondents analytics, machine learning, and natural language
at firms providing investment management services processing to increase efficiency while improving
most often said their institutions review the risks the ability to identify potential risk events, such as
from these relationships annually, with this being instances of insider trading. A substantial number
most common for administrators (60%), transfer of respondents said they thought it was extremely
agents (60%), pricing vendors (58%), prime brokers or very likely that their institutions would seek to
(50%), and reference data providers (50%). enhance their data and analytics capabilities to
Reviewing the risks from these relationships more improve various aspects of their investment
often—either monthly or quarterly—was most often management business, including portfolio
reported for custodians (33%), transfer agents management (75%), client engagement (60%),
(30%), and infrastructure technology vendors product innovation (58%), and market research
(29%). (55%) (figure 21).
43
FIGURE 21
Over the next two years, how likely is your organization to seek to enhance its
data and analytics capabilities to improve each of the following aspects of its
investment management business?
Base: Organizations that provide investment management services
Extremely/very likely
Portfolio management
75%
Client engagement
60%
Product innovation
58%
Market research
55%
Operations (e.g., back and middle office)

50%
Capital market activities

50%

Insurance Respondents at these institutions reported using a

variety of approaches to assess insurance risk. The
ASSESSING INSURANCE RISK approaches used most often as a primary
Respondents at companies providing insurance methodology are actuarial reserving (68%),
services considered their companies to be internal capital framework/model (55%), value at
extremely or very effective at managing various risk (53%), regulatory capital (50%), stress testing
types of insurance-related risks such as morbidity (50%), and claims ratio analysis (50%) (figure 22).
(92%), underwriting/reserving (88%), mortality
(86%), and catastrophe (83%). However, Among institutions providing insurance services
insurance companies will need to be vigilant in that perform stress testing, almost all respondents
monitoring these risks, especially morbidity said it is performed on market risk (85%) and
and mortality. interest rate risk (80%), areas where risk scenarios
are relatively easy to define and quantify.
In contrast, only 48% of respondents at institutions Somewhat surprisingly, 85% of respondents also
providing insurance services rated their institutions said that stress testing is performed on operational
as extremely or very effective in managing events (e.g., cyber, business resiliency, or third-
geopolitical risk, an area that will require more party vendor), where it is more challenging to
focus given the increasing uncertainties in the employ. Stress testing was less often reported to be
global political environment. conducted on other risk factors such as property
and casualty claim cost (65%), expense (45%), and
44
ESG (including climate) (30%). Many insurers will Insurers should expect that a group solvency
need to consider deploying stress testing more requirement will gain ground in the coming years,
broadly, especially with regard to climate risk, and they should take steps to be ready to comply.
which is increasingly being required by regulators. Eighty-one percent of respondents providing
insurance services said they are subject to a legal
REGULATORY AND ECONOMIC CAPITAL entity solvency test, and the remaining 19% said
Regulatory authorities around the world are they are not currently subject to one, but believed
imposing stricter capital standards on insurance they are likely to be in the future.
companies, with the most influential regime being
Solvency II, which was developed by EU regulators. GLOBAL CAPITAL STANDARD
Many insurance companies have applied for and The IAIS is working to develop a global insurance
received approval of internal capital models capital standard (ICS) with the aim of allowing
permitted by Solvency II. insurers to operate across borders more efficiently,
reduce costs, and bring benefits to consumers. On
In June 2020, EIOPA announced that it would March 27, 2020, the IAIS announced that as part of
extend the date by which it would deliver its advice its efforts to address the impact of COVID-19 on the
on the Solvency II review to the European insurance sector, it had extended the deadline for
Commission to the end of December 2020 to allow submitting data for its review of the ICS reporting
for an assessment of the impact of COVID-19 on and the aggregation method to October 31, 2020.23
the insurance industry.22
Respondents that provide insurance services were
Among the institutions providing insurance asked what level of impact they expected the ICS to
services that participated in the survey, 38% said have on their company. These respondents most
they are subject to Solvency II requirements. With often considered the ICS to have at least a
other regulators looking to Solvency II as a model, somewhat significant impact (74%), although only
an additional 33% of these respondents said their 37% expected the impact would be extremely or
institutions are subject to regulatory capital very significant.
requirements similar to Solvency II.
The two other issues where insurance respondents
Half of the respondents providing insurance most often expected at least a somewhat significant
services said their companies are required by their impact were broader ComFrame requirements of
lead insurance regulator to undertake a solvency risk management and governance (63%, with 26%
test for their insurance group, while 33% said their extremely or very significant) and recovery and
insurance group is not subject to a solvency test, resolution planning (60%, with 20% extremely or
but believed it would likely be in the future. very significant).
45
FIGURE 22
To what extent does your organization use each of the following methods to
assess insurance risk?
Base: Organizations that provide insurance/reinsurance services
Primary methodology Secondary methodology
Stress testing
50% 50% 100%
Regulatory capital
50% 45% 95%
Internal capital framework/model

55% 35% 90%
Actuarial reserving
68% 21% 89%
Claims ratio analysis

50% 33% 83%
Value at risk
53% 26% 79%
Asset adequacy analysis

37% 42% 79%
Value of new business

37% 42% 79%
Economic capital
42% 32% 74%
Dynamic financial analysis

21% 47% 68%
Stochastic embedded value

20% 45% 65%
Market consistent embedded value

21% 26% 47%

46
Conclusion
I
N 2020, RISK management faced an exceptionally consumer behavior have changed dramatically.
volatile and uncertain business environment Institutions will also need to monitor and comply
created by the COVID-19 pandemic. Looking with an evolving set of regulatory expectations
ahead, governments are facing the conundrum of regarding AI and other technologies.
how best to balance public health concerns and
economic health for their citizens.
The global health
The global health crisis and the resulting economic crisis and the resulting
contraction served to heighten some longstanding
risks while also creating distinctive new issues. The
economic contraction
economic downturn significantly increased credit served to heighten some
risk among both retail and business customers.
Institutions will need to monitor carefully which
longstanding risks while
countries and sectors are returning to growth fairly also creating distinctive
quickly and which have a longer road to recovery.
new issues.
The pressure on revenues increased the existing
motivation to reduce risk management expenses, These technologies depend on timely, high-quality
which have been growing continually since the risk data that has been aggregated across the
global financial crisis. The drive to reduce risk organization, but this is often difficult to achieve.
management budgets is likely to grow if the Many institutions could benefit from making data
recession is prolonged. management a higher priority and may want to
consider creating a data management office led by
The goal of reducing risk management expenses a CDO to oversee data management across
could spur increased investment in emerging the enterprise.
technologies that can drive down costs by
automating both routine manual tasks and also The health crisis has increased the importance of
decisions that require human judgment, with effectively managing nonfinancial risks. COVID-19
exceptions flagged for review by human tested the operational resilience of institutions and
professionals. At the same time, these technologies their ability to rely on digital tools to allow their
can improve the overall effectiveness of risk employees to work virtually. One senior risk
management by reducing human error, improving management executive interviewed for this study
testing, and identifying potential risk events before commented that they had compressed a decade of
they occur so that steps can be taken to avoid or transformation work into a matter of months.
mitigate them.
Employees working remotely due to COVID-19
Yet, institutions will need to recognize that have created additional cybersecurity challenges.
machine learning or other predictive technologies Institutions may be more vulnerable to
that have been trained on pre–COVID-19 data may cyberattacks, fraud, and breaches of customer data,
need to be retrained since business conditions and which could expose them to greater risk of
47
noncompliance with data privacy requirements. In short, COVID-19 has raised the stakes, and
The potential for conduct risk can grow, since shifted the playing field, for risk management. Risk
conversations with customers may not be subject management will need the flexibility to respond
to the same monitoring and controls. quickly to volatile economic conditions and
changing work practices, while continually
As the pandemic continues, the responses of monitoring which changes are temporary
governments, businesses, and consumers to responses to the pandemic and which are destined
COVID-19 are transitioning from short-term to become permanent. At the same time,
measures into a longer-term set of working institutions will need a strong foundation in place—
practices with no end date in sight. Institutions including a risk appetite statement that informs
should consider how they can maintain strategy and decision-making, a CRO with
productivity if the COVID-19 practices become the sufficient independence and authority, an effective
new normal. How can they successfully maintain three lines of defense governance model, and
morale and communicate their culture and values robust IT systems with comprehensive, high-
when employees, especially new hires, are working quality supporting data.
virtually? How can they continue to innovate, when
team members can’t brainstorm while sitting The challenges have not been this great in recent
around a table in a meeting or over a meal or drink memory. To meet them successfully, risk
after hours? How to maintain morale in a virtual management will need strong governance, coupled
working environment will continue to be a with the agility to respond to the morphing profile
particular concern at institutions that are reducing of risks in these volatile times.
overall headcount to shrink operating budgets.
Risk management will need the flexibility to respond

quickly to volatile economic conditions and changing work
practices, while continually monitoring which changes
are temporary responses to the pandemic and which are
destined to become permanent.
48
Endnotes
1. International Monetary Fund, “World economic outlook: A long and difficult ascent,” October 2020.
2. Y Charts, “10-year Treasury rate,” accessed December 24, 2020.
3. Tadhg Enright, “How will Brexit impact London as Europe’s leading financial hub?,” Euronews, November 10,
2020.
4. European Central Bank, “ECB Banking Supervision provides temporary relief for capital requirements for
market risk,” press release, April 16, 2020.
5. For a discussion of regulatory responses to COVID-19, see Deloitte, Interim regulatory outlook 2020: Hard times,
2020.
6. In this report, institutions that provide banking services will sometimes be termed “banks” (even if they also
provide other types of financial services); institutions that provide insurance services will be termed “insurance
companies” (even if they also provide other types of financial services); and institutions that provide investment
management services will sometimes be termed “investment management firms” (even if they also provide
other types of financial services).
7. Percentages total more than 100% since respondents could make multiple selections.
8. Percentages total more than 100% since respondents could make multiple selections.
9. FitchRatings, “European GTUBs’ rising credit costs drive 2Q20 profit slump,” August 6, 2020.
10. Leveraged lending was not included in the 2018 survey.
11. For a discussion of the impact on COVID-19 on liquidity management, see Deloitte’s report, COVID-19 impact on
bank liquidity risk management and response, 2020.
12. Christine Lagarde, “Estimating cyber risk for the financial sector,” IMF Blog, International Monetary Fund, June
22, 2018.
13. Charlie Osborne, “COVID-19 blamed for 238% surge in cyberattacks against banks,” ZDNet, Mary 14, 2020.
14. Peter Baldwin, “New York Department of Financial Services issues new guidance regarding COVID-19
cybersecurity risks,” National Law Review, April 14, 2020.
15. Bank of England, “The 2021 biennial exploratory scenario on the financial risks from climate change,”
December 18, 2019.
16. European Insurance and Occupational Pensions Authority, “EIOPA consults on the supervision of the use of
climate change scenarios in ORSA,” October 5, 2020.
17. For a discussion of the Royal Commission, see the report by Deloitte Australia, Post Royal Commission—A new
era, 2019.
18. Bank of Japan, “Legal responsibility in investment decisions using algorithms and AI,” 26 April 2019.
19. For a discussion of the tailoring of regulatory requirements in the United States, see Deloitte’s report Banking
regulatory outlook 2020, 2020.
20. Deloitte, Consensus no more? Financial Markets Regulatory Outlook 2020, 2020.
21. FitchRatings, “EU banks key beneficiaries of Basel III coronavirus delay,” April 1, 2020.
49
22. European Insurance and Occupational Pensions Authority, “EIOPA revises its timetable for advice on Solvency II
Review until end December 2020,” April 30, 2020.
23. Thomson Reuters Practical Law Financial Services, “COVID-19: IAIS addresses impact on insurance sector,”
March 27, 2020.
50
About the author
J. H. Caldwell | [email protected]
J. H. Caldwell, a partner at Deloitte Risk & Financial Advisory, Deloitte & Touche LLP, as well as Global
Risk Advisory leader for the Financial Services Industry, has more than 25 years of risk management
experience within the sector. He has deep experience with the complete credit lifecycle, enterprise risk
management, operational risk, and integrated compliance risk management. His extensive experience
in the area of credit includes quantitative methodology, portfolio analytics, process, and controls,
integrating risk management practices, and addressing and resolving the Office of the Comptroller of
the Currency (OCC) and other regulatory issues.
51
Acknowledgments
SUBJECT MATTER ADVISERS • Nino Montemarano, Toronto,

[email protected]
• Laurent Berliner, Luxembourg,
[email protected] • Monica O’Reilly, San Francisco,
[email protected]
• Kristina Davis, Boston,
[email protected] • Markus Salchegger, Munich,
[email protected]
• Karl Ehrsam, Parsippany,
[email protected] • David Sherwood, Stamford,
[email protected]
• Richard Godfrey, Parsippany,
[email protected] • David Strachan, London,
[email protected]
• Edward Hida, New York,
[email protected] • Kristen Sullivan, Stamford,
[email protected]
• Julian Leake, London,
[email protected] • Tony Wood, Hong Kong,
[email protected]
• Ricardo Martinez, New York,
[email protected]
EDITORS
J. H. Caldwell
Global Financial Services Risk Advisory leader | Deloitte Risk Advisory | Partner | Deloitte & Touche LLP
+1 704 227 1444 | [email protected]
Jesselyn Garrisi
Senior manager | Deloitte & Touche LLP
This report is the result of a team effort that included contributions by financial service practitioners
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Global risk management

survey, 12th edition

Introduction: The COVID-19 era 9

About the survey 11

Risk management governance 13

Management of individual risk types 26

Risk management technology and data 38

Sector risk topics 42

“The infrastructure works, so you can work from home.

Key findings Continuing concerns over cybersecurity.

“We understand that to serve clients and serve those

Economic environment Concerns over the global economy led to a flight to

— Chief Risk Officer, Major diversified

“One of my biggest issues has actually been getting my

About the survey

views of CROs or their

equivalents at 57 financial management (9%) (figure 2). When asked which

the world representing a offering investment management (53%), banking

The institutions participating in the global risk management survey represent

37% North America

Source: Deloitte Global Risk Management Survey, 12th ed.

Participants by primary business

Note: Percentages may not total to 100 due to rounding.

The institutions surveyed represent a range of asset sizes

47% 32% 21%

Source: Deloitte Global Risk Management Survey, 12th ed.

Risk management governance

Role of the board of directors their periodic board-level risk management

Review and approve the organization’s formal

Review and approve overall risk management policy

Approve the enterprise-level risk appetite statement 87%

Review regular risk management reports on the range of

Review stress testing scenarios and results 67%

Monitor new and emerging risks 65%

Assess capital adequacy 63%

Review corporate strategy for alignment with

Conduct executive sessions with chief risk oﬃcer 63%

Review individual risk management policies 57%

Review management’s steps to remediate any

Monitor conduct risk 54%

Review/approve recovery resolution planning 52%

Deﬁne risk management reporting lines

Topics addressed in periodic board-level risk management reporting package

Conduct and culture monitoring 100%

Operational resilience monitoring 100%

Risk executive summary 85%

Cyber risk updates 78%

Risk limits and metrics trend analysis 76%

Top risks 76%

Risk appetite utilization vs. risk appetite 75%

Stress testing results 73%

Risk assessment results 73%

Emerging risks 73%

Risk type dashboard 71%

Regulatory updates 67%

Risk program updates 65%

External risk environment 60%

Aggregated entity-level risk update 58%

Risk type updates 56%

Introduction: The COVID-19 era 9

About the survey 11

Risk management governance 13

Management of individual risk types 26

Risk management technology and data 38

Sector risk topics 42