High-Impact Risk Management: Key Strategies for Financial Institutions

Does your financial institution’s (FI) risk management program need a tune-up?

As a former chief risk officer (CRO) and risk management professional for over 30 years, I’ve experienced firsthand the benefits of high-impact risk management — and what happens when risk management goes under the radar.

Regardless of size, business model, or maturity level, every financial institution can benefit from a more integrated, forward-looking approach. High-impact risk management isn’t just about regulatory compliance — it’s about enabling resilience, agility, and informed decision-making across your FI.

Let’s explore the foundational elements of high-impact risk management and how to integrate risk oversight into your institution’s broader framework.

Watch On Demand: Navigating the Unknown: A Proactive Blueprint for High-Impact Risk Management

Table of Contents

• What is high-impact risk management?
• What makes up a high-impact risk management program?
• The future of risk management

What is high-impact risk management?

High-impact risk management involves using a risk management program to help guide an institution’s business and strategic decisions. While not every FI takes the same approach to risk management, FIs with poor risk management often have the same issues:

• They operate in organizational silos. Let’s say a bank’s compliance team has an excellent Bank Secrecy Act and anti-money laundering (BSA/AML risk) assessment but resists integrating it into the organization’s broader enterprise risk management (ERM) program. Their protectiveness could prevent the assessment from being widely shared, limiting proactive and agile risk management.
• They lack details and documentation. Many risk assessments lack sufficient detail, with employees often assigning inherent risk classifications without providing supporting data. This lack of depth can affect overall risk management effectiveness since inherent risk assessments influence residual risk and business decisions.

What makes up a high-impact risk management program?

1. Integrated, risk-based enterprise risk management (ERM) 

Integrated ERM is a centralized, efficient process that eliminates silos and drives better decision-making at an FI. Many regulators, including the Federal Reserve and the Office of the Comptroller of the Currency (OCC), emphasize the importance of risk-based approaches for compliance, governance, and operational resilience. Integrated ERM helps institutions meet these expectations by using residual risk to inform decisions, such as developing audit plans based on higher-risk activities.

What does integrated, risk-based ERM look like in action? Let’s compare it with a more siloed approach.

In a siloed approach, FIs make decisions without input from key stakeholders. This limits visibility into critical risks such as staffing, credit, cyber, or third-party exposure and can lead to gaps, redundancies, and misalignment with broader strategy. FIs don't assess risk holistically, and communication is typically after the fact, reducing their ability to respond effectively.

An integrated ERM approach brings the right people to the table early and enables structured, risk-informed decision-making. It ensures that all relevant risks are considered upfront and that decisions align with the institution's objectives and risk appetite. This approach improves coordination, surfaces potential conflicts before execution, and supports more resilient, sustainable outcomes.

Related: Are Silos Stunting Your Risk Management Efforts?

2. Dynamic risk assessments 

Updating risk assessments is no longer a once-a-year activity. To stay proactive, FIs should be in their risk assessments nearly every day, updating them based on new products, emerging markets, and advanced technologies, such as AI, cryptocurrencies, and instant payments.

If a regulator asks during a quarterly meeting for your fair lending risk assessment, trying to update it on the fly could lead to disaster. If it’s regularly maintained and actively used, you can respond confidently, knowing the information is current and your risks and controls are being proactively addressed.

Here are some specific areas to consider as you update your dynamic risk assessments:

• Inherent risk: This risk exists naturally in the absence of controls. Simply labeling a risk as “high,” “medium,” or “low” is no longer sufficient. Regulators increasingly expect institutions to quantify inherent risk using objective, supportable metrics.
• Residual risk vs. risk appetite: Residual risk remains after controls are applied to an inherent risk. This is the point of comparison against the institution’s risk appetite — the level of risk the leadership and board are willing to accept. If residual risk is within the stated appetite, risks are effectively managed. If it exceeds that threshold, the FI must strengthen controls, take on additional risk, or escalate the issue for board discussion and approval.
• Control effectiveness assessment: Assessing control effectiveness means reviewing whether processes are functioning as intended, documented appropriately, and monitored over time. Weak or outdated controls can give a false sense of security. A transparent process for testing controls is key to accurate risk assessments and informed decisions on fixing or escalating issues.
• Key risk indicators: KRIs offer early warning signs, track trends, and support decisions, helping keep risk within your organization’s appetite and informing leadership when they get off track. Examples of KRIs include increasing delinquency rates and fee income drops.

Related: Risk Management 101: Risk Assessments for Financial Institutions

3. Board reporting and oversight

ERM connects risk insights to strategic decision-making led by the board. The CRO and risk leaders need a direct line of communication with the board to share emerging threats and opportunities that impact the FI’s performance and, ultimately, its bottom line.

When sharing reports, include value metrics such as equity, ratios, and performance indicators to demonstrate how integrated high-impact risk management drives value for the entire organization.

Related: Board Reporting: FAQ for Financial Institutions

4. Management Involvement

Gaining management buy-in is essential but often challenging. Too often, team members outside the risk team see risk as the “department of no” and even a hindrance to their internal processes.

To address this challenge, risk teams can draft initial risk assessments and then collaborate with subject matter experts (SMEs) in each area to validate and refine them. In my experience, this process builds ownership, respect, and trust across the entire FI. When all necessary stakeholders sit at the risk table, the organization can operate more proactively and efficiently.

Related: Board and Management Action Plan for Enhancing Resiliency

5. Staffing and technology

Today’s risk management teams are operating with lean teams and limited resources in an increasingly complex environment. According to a 2024 report, 54% of risk professionals expect their firms to increase staffing across risk teams over the next 18 months, indicating a recognition of current staffing inadequacies. Even major institutions, including Citigroup, have struggled to train employees in risk, compliance, and data roles.

While Excel and documents are still used at many institutions, manual processes become less viable as an institution grows, underscoring the importance of adopting the right technology to streamline internal processes while maintaining a strong risk culture.

Related: Learn how a $300 million bank increased its efficiency, enhanced decision-making, and strengthened its risk culture with integrated risk solutions. More info.

6. Change management

Change management is critical for adapting to internal and external developments, such as new products, services, regulations, or enforcement actions. Institutions should have a formal change management process or committee involving risk, compliance, audit, and information technology. Doing so brings diverse perspectives and helps ensure change is addressed holistically.

The solid change management process consists of the following:

• Identification: Know what changes are occurring.
• Impact analysis and learning: Determine if the changes impact the institution. For example, a crypto-related regulation may not apply to your FI if you don’t plan on offering crypto products.
• Identifying responsible parties. The leaders should determine the first steps and the action plan.
• Create action plans. Identify what needs to be done, who is responsible, and the timelines for completion.
• Update risk assessments. Modify existing risks and controls or test their effectiveness under the new changes and conditions.
• Ongoing communication and training. Meet regularly, monitor progress, and ensure policies, procedures, and training are updated accordingly.
• Test new processes before a full rollout.
• Post-implementation: Confirm the changes are functioning as intended and make adjustments as needed.

7. Enforcement Actions

Over 90% of all enforcement actions mention risk management. By analyzing enforcement actions, FIs can identify gaps in their processes and controls and make changes to reflect regulatory priorities.

Enforcement actions don’t impact a single department – they affect the entire organization. Last year, a major bank agreed to pay more than $1 billion in penalties to the Justice Department after failing to address BSA/AML issues for nearly a decade. While the enforcement action is financially damaging, the bank is also not allowed to grow in asset size, add new products and services without approval, or open new branches until it has fully complied with an OCC consent order.

Related: How to Leverage Enforcement Actions to Strengthen Your Compliance Program

The future of risk management

A high-impact risk management strategy requires knowing the trends, challenges, and opportunities facing the risk management realm. Here are some best practices to keep your FI strong and steady moving ahead:

• Stay ahead of regulatory changes. Establish a process to identify regulatory updates. Every month, Ncontracts’ regulatory experts break down the latest enforcement actions, highlighting what went wrong and how to help your institution stay ahead of similar risks. If you are operating in an active legislative state, it’s especially crucial to closely follow state regulations.

Related: How to Keep Up with State Regulations

• Maintain practices despite regulatory rollbacks. If your current practices and processes address core risks, continue regardless of the regulatory environment. Just because regulators are not focusing on specific areas (e.g., reputation risk) doesn't mean institutions should stop managing them.
• Adapt to customer demands. Customers now expect instant, seamless services. This "need-it-now" culture pushes FIs toward faster decision-making and real-time payments, increasing fraud and operational risk exposure.
• Leverage analytics and AI. Artificial intelligence and other advanced technologies are crucial in helping FIs manage risk. To mitigate risk, implement clear AI governance policies covering usage, access, and data protection.
• Mitigate operational risk through talent. The absence of clear regulatory guidance makes operational risk more challenging to manage. A key control is retaining experienced, knowledgeable employees who understand institutional processes.

Explore how integrated risk management tools and expert-driven solutions can meet your institution's unique needs.