Banks today are under immense pressure to meet the ever-increasing regulatory demands, while also complying with Single Supervisory Mechanism (SSM) on-site inspections.
One of the current focus areas of on-site inspections is the structural complexity of banks and the resulting challenges for governance frameworks and profitability1. In order to meet the demands of the supervisory activities, European banks are reviewing their operational models and working towards minimizing their operational risk.
A way to manage operational risk is via “In-control” assessments - self-assessments used to measure operational risk and internal control effectiveness. The overall goal is to identify risks early on and develop a mitigation plan in order to achieve operational excellence. The assessments are administered across operational staff from different lines of business and senior management, so that the results are first-hand and are reflective of the actual internal control levels.
Traditionally in-control assessments are carried out by external consultants in the form of workshops or through face-to-face interviews with the bank’s staff in which responses are recorded manually. Based on a custom maturity framework and the recorded responses, consultants would determine a certain maturity level for the organization. However, this approach poses a number of challenges:
Combining in-depth financial knowledge and expertise with technology know-how, KPMG has solved these challenges via digitalization of the end-to-end assessment process. KPMG’s digital platform for rapid questionnaire development (Qubus) enabled our Financial Services professionals to digitize their proven ERM maturity model for operational risk assessments. The toolkit was deployed as an in-control assessment at a large Dutch bank as part of their strategic operational excellence & internal control program. The bank was having difficulties meeting its strategic goal of achieving the next level of maturity in operational excellence and internal control. By using the Qubus assessment toolkit, KPMG was able to quickly deliver a robust solution to track and quantify progress of the teams’ adoption of the improvements needed to achieve the next maturity level, which were validated by our risk professionals.
Besides the regular questionnaire tooling, Qubus has many advanced features to support scoring, configuration of custom work-flows, generation of custom visual reports, such as heat maps, and integration with third-party platforms. Once the assessment is put in place, it can be reused to measure each consequent maturity phase. Among the other benefits of digitalizing the assessments are streamlined and automated reports on progress, single repository for collecting evidence of the improvements and flexibility in defining the maturity model to be used.
By digitalizing their in-control assessment, the bank can now perform self-assessments more regularly and with improved accuracy and efficiency across different organizational levels.
Since Qubus is a flexible and configurable platform, the assessment toolkit is easy to deploy at other banks as well, with minimum customizations. A similar toolkit can even be deployed for tracking SSM on-site inspections for, let’s say, non-performing loans. But this is a story for another time.
1 Trends in supervisory on-site activities, October 2018