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Banks and insurers right to prioritise technical skills in operational risk but must not overlook training in nurturing talent  

By Roland Kennett, Director of Membership at ORX 

Our recent ORX People Capability Survey study of global financial institutions asked banks and insurers probing questions on how they currently approach and prioritise people development in the area of operational risk.  The results highlighted what we might expect, or at least hope, that banks and insurers are increasingly recognising the importance of people power and mapping skills and knowledge requirements for operational risk across their firm. Reassuringly, 34% said that people development frameworks are mature and 49% said that these are currently in development.

There can be no doubt that the Covid-19 pandemic will have had an influence on these recent figures, with operational risk having taken centre stage to help finance firms navigate the societal changes and economic uncertainties over the past year. The survey found that over a third (36%) of firms increased their focus on the importance of prioritising people development in operational risk in the last year as a result of Covid-19.

However, whilst banks may be committed to having sophisticated frameworks in place for people and skills development, less than a quarter (24%) polled were satisfied with the training available across the industry – vital to close any skills gaps and bring new talent into the industry.

Here are some of the insights taken from this year’s benchmark report:

Firms are prioritising digital skills

With the speed of digital transformation, it’s no surprise to see the acquisition of digital skills as the number one priority in this year’s survey results. Digital transformation represents a structural change for the financial industry – it is both creating new challenges for operational risk management, and promising new techniques to understand and control risk better. Operational risk has a real opportunity to innovate in how it works and what it offers, and technology has a vital role to play.

It is good to see therefore that top of the list of skills priorities for financial firms in 2021 are digital (68.6%), resilience (54.9%) and emerging risks (54.9%). These are of course tied together by technology which also plays a significant role in new innovation and processes in tackling resilience and emerging risks.

Roland Kennett

Roland Kennett

And this also links directly to where we are seeing the greatest innovations. Notable impacts are seen in areas where technology plays a significant role, such as the automation of control, detection for fraud, conduct, cyber, anti-money laundering, and financial crime.

Digitalisation and the pandemic have also highlighted a need for the relevant subject matter expertise. Information security (74.5%), technology (62.7%) and third-party (64.7%) risks are the top three priorities for subject matter expertise development. Data management and business continuity are also a focus, but conduct risk is surprisingly low down on the priority list.

Softer skills not underestimated to support active risk management

It’s often the case that some of the softer skills get overlooked for more ‘practical’ and seemingly more immediate skill sets. But it is good to see that banks and insurers recognise that more communication and creative skills are also crucial. Best practice in collaboration and influencing, alongside innovation, must underpin all effective operational risk functions and the survey revealed that influencing (62.7%), collaboration (56.9%) and innovation (49%) are the top three soft skill priorities for 2021. Insurers are particularly investing in uplifting operational risk influencing skills, suggesting that the operational risk function’s internal profile is perhaps lower than in banks.

Sophisticated people power frameworks must not overlook operational risk training 

More than half of survey respondents currently map skill requirements to risk roles. A further third consider their practice in this space to be mature, e.g., by defining skill proficiency levels and knowledge requirements. However, 2LOD (Second line of defence) people development is primarily done via self-directed learning and on the job experience, supplemented by external training. As mentioned at the start of the article, less than a quarter (24%) are satisfied with current market provision, which is not acceptable to them.

This survey is a benchmark on people and skills development in operational risk across the financial industry. Without the right skills in financial services firms, they can’t possibly reach their potential and drive innovation. With the current pace of change, we need to make sure that financial institutions have the right skills and training programmes that reflect industry priorities, both now and for the future.

Innovation and Human Capital 

It is good to see that ensuring risk teams have the right talent is a key priority for many firms. The pandemic has certainly shone a light on the importance of not only having the right operational risk processes in place, but also having talented people on board to implement and drive further innovation.

But it’s clear that the provision of dedicated and specific training needs to be a key focus to ensure that employees get the skills they need to do their job well and that talent continues to thrive.

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