Non-financial Risk Management in the Financial Industry

Managing environment, social and governance (ESG) risk, compliance risk and non-financial risk (NFR) has become increasingly critical for businesses in the financial services industry. Furthermore, expectations by regulators are ever more demanding, while monetary sanctions are being scaled up. Accordingly, ESG, Compliance and NFR risk management requires sophistication in various aspects of a risk management system.



This handbook analyses a major success factor necessary for meeting the requirements of modern risk management: an institution-specific target operating model (TOM) – integrating strategy, governance & organisation, risk management, data architecture and cultural elements to ensure maximum effectiveness. Also, institutions need to master the digital transformation for their business model to be sufficiently sustainable for the years to come. This book will offer ways on how to achieve just that.



The book has been written by senior ESG, Compliance and NFR experts from key markets in Europe, the U.S. and Asia. It gives practitioners the necessary guidance to master the challenges in today's global risk environment. Each chapter covers key regulatory requirements, major implementation challenges as well as both practical solutions and examples.



Norbert Gittfried is a Partner and Director at Boston Consulting Group. As topic coordinator for Compliance & Regulation, he advises large financial institutions worldwide on complex compliance transformations and the development of overarching non-financial risk steering approaches. His focus lies both in establishing effective Compliance and NFR Management systems, in digitising those functions and making them more efficient. Prior to joining BCG 11 years ago, he was Senior Manager at a Big 4 Company. He is a lecturer at Goethe Business School and a permanent representative in various industry bodies for FI.



Georg Lienke is a lawyer and Associate Director at Boston Consulting Group focusing on non-financial risk management and Compliance. In his work for financial institutions and corporate clients over the last 15 years, his focus was on the design and implementation of target operating models for non-financial risk management. Georg regularly publishes on non-financial risk topic. He holds a Ph.D. in law from the Technical University Dresden and a Master of Laws in Corporate and Financial Law from the University of Hong Kong. Prior to joining BCG, Georg worked at a Big 4 Company and a global bank.



Florian Seiferlein is an Associate Director at Boston Consulting Group. For over a decade, he advised leading companies on Compliance & Non-Financial Risks (NFR). He managed large-scale Compliance & NFR transformations, investigations and regulatory assessments in Europe, North America and Africa, and he was also a part of US Monitor teams. Prior to joining BCG, he worked for Big 4 and management consulting firms. Florian holds a Master of Science in business engineering (Karlsruhe Institute of Technology).



Jannik Leiendecker is a Partner and an Associate Director at Boston Consulting Group. Over the last 11 years, his focus has been on Non-Financial Risk (incl. Compliance) and ESG. He has advised numerous clients especially within the Financial Services industry on the set-up and optimisation of their respective operating model. He has also co-authored various corresponding publications. Jannik holds a Master of Science in Economic History from the London School of Economics and a Bachelor of Science in Business from the Ludwig-Maximilians-University in Munich.



Bernhard Gehra is a Senior Partner and Managing Director at Boston Consulting Group. His focus has been on Risk, Compliance and Technology for more than 20 years. During the last of those, he has led large worldwide projects focused on Risk and Non-Financial Risk. Furthermore, Bernhard recently managed ESG Compliance issues for large companies. Prior to joining BCG, he worked for a global securities service provider. Bernhard holds a Ph.D. in information science.



Editors



Contributors



Foreword



Introduction: Rising to the Challenges of Non-Financial Risk Management, Compliance and ESG

Prof. Dr. Douglas Arner, Dr. Bernhard Gehra, Jannik Leiendecker, Dr. Georg Lienke



Definition of Non-Financial Risk in Financial Institutions

Martina Mietzner, Dr. Julia Gebhardt, Dr. Katharina Hefter, Jennifer Rabener, Dr. Carsten Wiegand



Risk Boundaries – Setting an Analytical Risk Appetite Framework for Non-Financial Risks

Federico Truffelli, Dr. Ulrich Göres, Lorenzo Fantini, Michele Rigoni, Luca Rancan



The Three Lines of Defence Model: Key Success Factors for Effective Risk Management

Dr. Oliver Engels, Marc Peter Klein, Peter Gürtlschmidt, Dr. Georg Lienke, Rei Tanaka



Global Functional Lead in Non-Financial Risk Management: Ensuring Consistency and Integration in Complex Organisations

Ulrike Brouzi, Dr. Michael Lange, P. Robert Mieszkowski, Jannik Leiendecker, Dr. Georg Lienke, Florian Seiferlein, Norbert Gittfried, Rei Tanaka



Policies and Procedures: Framework and Governance Requirements in the Financial Sector

Dr. Erasmus Faber, Björn Stauber, Dr. Georg Lienke



Top-Down Risk and Control Assessment: A Forward-Looking Approach to Evaluate Company-Wide Non-Financial Risk Exposure

Hurdogan Irmak, Burcu Nasuhoglu, Dr. Erasmus Faber, Lorenzo Fantini, Benedetta Testino, Jannik Leiendecker, Barbara Fojcik, Dr. Georg Lienke



A Top-Down Approach to Non-Financial Risk Reporting: Collaboration Across Risk Types for Sustainable Risk Steering

Valérie Villafranca, Dr. Georg Lienke, Florian Seiferlein, Kai Gammelin, Dr. Katharina Hefter, Norbert Gittfried



Internal Investigations into Corporate Misconduct: Applying an Investigative Approach to Enable Proactive Risk Oversight

Lora von Ploetz, Florian Seiferlein



Technical Application and Data Architecture for Non-Financial Risk Management

Kai Gammelin, Björn Stauber, Dr. Christian N. Schmid, Dr. Jan-Oliver Fröhlich, Annika Melchert, Daniel Wagner



Data Governance in Non-Financial Risk Management

Björn Stauber, Dr. Christian N. Schmid, Dr. Jan-Oliver Fröhlich, Annika Melchert, Daniel Wagner



Optimising Effectiveness and Efficiency: Deployment of Artificial Intelligence in Non-Financial Risk Management

Dr. Jochen Papenbrock, Dr. John Ashley, Dr. Georg Lienke, Florian Seiferlein, Norbert Gittfried



Core Elements of Conduct and Ethics in the Context of Non-Financial Risk

Dr. Barbara Roth, Dr. Erasmus Faber, Dr. Julia Gebhardt, Dr. Katharina Hefter



Managing Conduct Risk: Framework and Perspectives

Prof. Dr. Martin Schulz, Dr. Julia Gebhardt, Dr. Katharina Hefter, Rene Bystron



Successful ESG Transition: Implications and Challenges for Effective Risk Management

Anita Varshney, Jannik Leiendecker, Aytech Pseunokov



Bibliography