Episode 13: Measuring Risk Maturity and Why Peer Analysis is Important

In a recent episode of the Risk Intel Podcast, we welcomed Shea Scarpa Gardner, the Product Manager from the Risk Management Association (RMA). The episode focused on the RMA Risk Maturity Framework, Powered by SRA Watchtower and the significance of peer analysis in measuring risk maturity. Here's a brief summary of the key points discussed:

The Evolution of Risk Maturity Framework (RMF)

The Risk Management Association (RMA) is a member organization that supports financial institutions by providing sound risk management principles. RMA's mission is to advance enterprise-wide risk management in financial services through education, products, and community engagement. They offer in-person and online training, board training, industry benchmarking, and opportunities for networking and education through RMA chapters.

The RMF was introduced in 2019 by RMA's Mid-Tier Bank Council, aimed at helping banks accurately measure their risk maturity. Initially, it was a prototype Excel spreadsheet but later evolved into a modernized solution, powered by the Watchtower platform. With close to 100 banks utilizing the tool today, the RMF is designed to assess a bank's maturity across nine pillars, including credit risk, market risk, regulatory compliance, etc.

Importance of Peer Benchmarking

One of the significant aspects of the RMF is peer benchmarking. Banks are interested in comparing their risk maturity and risk programs to those of their peers and competitors. This allows them to understand where they stack up in the market and identify areas for improvement. The benchmarking data helps banks set realistic goals, create milestones, and develop a roadmap to surpass their peers' maturity levels.

Regulatory Guidance and Proactive Risk Management

In the current market environment, regulators are increasingly focused on risk management programs and are urging institutions to take proactive measures to prevent potential issues. The RMF helps banks align their risk maturity rating with regulatory requirements, making it easier for them to identify areas for improvement and create plans to enhance their risk management practices. The tool even provides links to each of the required guidance, making it easy to navigate and find supporting documentation.

The Value Proposition of RMF

The Risk Maturity Framework offers three key value drivers to financial institutions. First, it provides a comprehensive gap analysis of the bank's existing risk management program, highlighting areas that need improvement. Second, it facilitates better communication between the first line of defense, boards, and regulators, aligning everyone's understanding of goals and plans. Finally, the RMF acts as a project manager, enabling banks to create and implement plans, assign tasks, and set due dates for achieving risk maturity targets.

Conclusion

The Risk Intel Podcast episode with Shea Scarpa Gardner provided valuable insights into the Risk Maturity Framework and the importance of peer analysis in assessing and enhancing risk management practices. The RMF helps financial institutions identify gaps, create actionable plans, and align their risk management strategies with industry best practices and regulatory standards. By leveraging the RMF's peer benchmarking feature, banks can position themselves as more risk-mature organizations, driving safety, soundness, and improved enterprise value.