Risk management companies are businesses that work with companies to identify, analyze, monitor, mitigate and report risks. These companies employ risk analysts and managers that monitor the way the company is controlling its risks and the financial resources they have to reduce risks.
Financial institutions use risk management companies for assistance with risks that include financial risks, operational risks, and strategic risks. When working with a bank, the risk managers are especially concerned with compliance risk to ensure the bank is following banking industry standards, laws, and regulations as well as internal policies and procedures.
Risk management is a way of ensuring procedures and policies are in place to reduce risks to property, net income, liability and personnel. The goal is to find ways to avoid risk, reduce risk, transfer risk, or reduce the severity of the loss if an adverse event happens.
Risk management companies work with bank management, board members, and legal counsel to help the bank comply with regulations so that the bank can identify and respond to noncompliance appropriately and document it accurately. They evaluate the bank’s use of third-party service providers for technical functions in the bank.
Risk management companies also identify practices that contribute to risk, including:
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hiring practices
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I.T. security practices
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accounting practices
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customer identification practices
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following regulatory guidelines
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choosing stable software vendors
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making risky loans or too many loans in one category
As a part of the risk management process, these risk analysts use existing data to uncover risks. They test the bank’s systems to find issues that could lead to increased risks. They analyze each risk and rate its level of severity and impact. Then, they work with the bank to create solutions that mitigate the risk.
Risk management companies use, recommend or supply software to help the bank avoid risk. Using risk management software is one way to ensure that risk management is a continual process throughout all the activities of the bank, even when a risk analyst is not on site.
Read also: RiskTech vs RegTech
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