Managing non-financial and compliance risks has grown increasingly complex for financial institutions. As supervisory expectations evolve and risks like ESG concerns, cybersecurity threats, and geopolitical volatility intensify, institutions must adapt their frameworks to address these challenges effectively. Below, we outline key considerations and actionable insights to enhance governance, oversight, and risk management processes.
Supervisory expectations and governance standards
The European Banking Authority (EBA) emphasizes the integration of risk and compliance functions in approving new products and adapting existing processes. These functions require sufficient authority, resources, and oversight to address risks emerging from digitalization, ESG, IT outsourcing, and cyber resilience. Supervisory Authorities have highlighted persistent gaps in governance, often stemming from insufficient involvement of management bodies in steering the Risk Appetite Framework (RAF).
Enhancing the risk appetite framework (RAF)
The RAF remains a cornerstone of effective non-financial risk management, though its application often lacks scope and explicitness. Financial institutions must refine their RAFs to encompass compliance and non-financial risks comprehensively.
We believe that supervisory and other stakeholders’ expectations are getting increasingly aligned on the need for a ‘Fit for Purpose’ Risk Appetite Framework. The Board of Directors must take a leading role in the process by challenging and validating the risk cartography and define the corresponding metrics and thresholds. The latter must reflect proportionality in terms of the business model, size and complexity of the financial institution.
Risk and control self-assessment (RCSA)
RCSA is a foundational tool for embedding a proactive risk-aware culture. It enables institutions to identify, assess, and mitigate risks through a structured, bottom-up approach.
We believe that RCSA frameworks should not be designed as a standalone framework to ensure regulatory compliance but rather as a business management tool with risk management capabilities. At the end of the day, the RSCA must ensure that activities are managed within the defined Risk Appetite.
Emerging risks and opportunities
Technological evolution, ESG mandates, and geopolitical dynamics are reshaping the risk landscape. Traditional risk management approaches are often inadequate for addressing high-velocity risks such as HR disruptions, greenwashing, and AI-related challenges.
Leveraging governance, risk, and compliance (GRC) tools
Efficient GRC tools streamline governance and compliance processes by automating workflows, centralizing risk documentation, and enabling real-time reporting. However, low internal control maturity often impedes their effective implementation.
The use of an Information System can create significant efficiency gains leaving more time for core Risk management & Compliance activities and reporting that matters.
How TriFinance can help
TriFinance offers comprehensive solutions for enhancing non-financial risk management frameworks, including:
- Framework (re)design: Aligning risk management processes with supervisory expectations.
- Risk ownership training: Empowering business units to take ownership of their risk profiles.
- RAF (re)definition: Developing robust Risk Appetite Statements and key risk indicators.
- GRC implementation support: Guiding institutions through the implementation itself but not only. We can help clients in the definition of the needs, the implementation of controls and the change management processes to maximize GRC tool potential.
TriFinance ensures that financial institutions not only meet regulatory standards but also embed risk management into their strategic operations, fostering resilience and agility in an evolving risk landscape.
By adopting a proactive, structured approach to non-financial and compliance risk management, institutions can navigate challenges effectively, meeting supervisory demands while driving sustainable growth.
