Compliance with the Bank Secrecy Act (BSA), the primary law that directs banks to develop anti-money laundering (AML) programs, has never been easy. So it should be no surprise that as cybersecurity threats proliferate in the modern era, AML compliance has become increasingly challenging.

Financial institutions (known as “FIs”) and non-bank financial institutions (NBFIs) struggle under the weight of risk management and compliance obligations. They often enlist software vendors to help them fulfill regulatory requirements to support their financial risk management strategies.

Enterprise risk management (ERM) software empowers businesses in the financial services sector with compliance management protocols and comprehensive risk assessments. These tools help financial firms make better decisions and transform their business processes to mitigate identified risks.

ERM works by connecting a firm’s governance, risk, and compliance (GRC) objectives to operations and performance goals. It provides insightful reporting, pre-built risk registers, templates, customization, and expertise when a financial firm needs it.

Financial risk management is the process of recognizing financial risks, analyzing them, measuring their volatility, and making investment decisions on the basis of accepting or mitigating those risks. These can be quantitative or qualitative risks, and the work of a financial manager is to employ the risk management tools at his disposal to protect against them.

For example, in the banking sector, the Basel Accords are a common set of standards that international banks have adopted to track and report credit, trading, and liquidity risks.

Financial managers must consider various types of risks before suggesting investment strategies such as operational risks for banks, foreign exchange risks, credit risks, and reputational risks.

What Is Financial Risk Management?

Financial risk management involves assessing and mitigating risks to a financial firm’s investment portfolio, as well as reducing any operational risk within the firm’s IT systems and business models. Since FIs and NBFIs handle sensitive information, they need to determine the cybersecurity risks of their own organization and of the vendors they use.

As security risk management becomes equally important to credit risk management, FIs and NBFIs need to address information security as part of their overall asset-liability management and decision-making programs.

Banking Risk Management Challenges

Risks faced by FI and NBFI are not for the faint of heart. Exchange rates, financial market volatility, interest rate risks, and liquidity risks are all challenging aspects of the industry. Various U.S. sanctions rules, enforced by the Office of Foreign Assets Control (OFAC), also require financial firms to monitor customer activity that should be reflected in all of the institutions’ risk management processes.

In addition, as we mentioned earlier, compliance with the BSA is a high priority for FIs and NBFIs. The BSA directs financial firms to develop AML compliance programs. Specifically, “Know Your Customer” (KYC) policies and procedures are required to identify suspicious activity. Development of and adherence to KYC policies are critical for regulatory compliance and national security.

Consumer Accounts

For consumer accounts, KYC policies and procedures require collecting the name, address, date of birth, and other identifiers (Social Security or passport numbers, for example) from all customers. AML compliance rules require businesses to document this information to prove that the firms have correctly performed due diligence and followed risk management processes.

Commercial Accounts

For commercial accounts, FIs and NBFIs must not only collect personal information about the individuals using the accounts. They must also collect business information such as articles of incorporation and tax identification numbers (TINs).

Records Retention

AML and KYC regulatory requirements require that most documents collected when onboarding and transacting with customers must be stored for five or seven years. Since this documentation is now often recorded electronically (such as scanning or using online account opening procedures), this means customer data must be retained on your corporate networks or with a cloud service provider.

FIs and NBFIs are handling an immense amount of personally identifiable information (PII) for their clients. Requirements to retain this information for several years compound the risk a bank must consider in its risk management plan for information and data security.

Risk Management Process for Banks

A formalized and precise risk management plan for a bank serves as a blueprint for enhancing performance by disclosing critical dependencies and control effectiveness. By properly implementing a strategy, banks should be able to better allocate time and resources to what is most important.

The size, brand, market share, and numerous other features dictate a bank’s risk management program. That being said, processes and policies must be standardized, meaningful, and actionable.


Bank asset managers must create an enterprise-wide risk mapping process to develop a meaningful risk management program. Most effective risk identification techniques focus on the root cause. Focusing on the root cause enables you to identify systemic problems to establish controls that remove the cost and time of duplication of effort.

Analysis and Management Methodology

Using standardized methods to assess risk is the trademark of a world-class risk management process. Collecting and analyzing data can be cumbersome, but a consistent approach is essential to prioritize corrective actions effectively.


Risk mitigation is the process of decreasing exposure to risk and attempting to reduce the likelihood of an issue. Primary risks and concerns must be continuously addressed to guarantee that the institution is protected as much as possible.


Risk measurement is a continuous process. It entails running tests, gathering metrics, benchmarking against previous results, and fixing occurrences to verify that controls are operating effectively. Monitoring also provides an opportunity to identify and address emerging trends to assess whether or not progress is being made on specific initiatives.


Establish relationships among risks, business units, remediation activities, and other aspects to provide a unified portfolio across the institution. This approach helps you to recognize upstream and downstream dependencies, systemic market risks, and opportunities for centralized controls. Breaking down silos between business units and initiatives allows you to leverage resources and expertise.


Insightful reporting is essential to monitor the progression and success of the risk management program. It provides visibility to stakeholders, documents opportunities to reduce risk, and drives investment to continuously improve the efficiency of regulatory compliance.

Where Enterprise Risk Management Overlaps with FI Compliance

Financial firms have always been highly regulated. Now, because their compliance obligations keep overlapping ever more with routine business operations, the firms’ enterprise risk management efforts overlap with their compliance efforts as well.

For example, FIs and NBFIs increasingly allow for online account opening. These processes require endpoint security and encryption to assure ongoing data protection. When the firms rely on technology vendors for parts of the account opening process, they must also assess and monitor their vendors’ cybersecurity measures.

Those tasks are arduous under the best of circumstances. Achieving compliance becomes overwhelming when institutions attempt to handle the burden with spreadsheets, email, and manual procedures.

Strategies for Monitoring Vendors

Vendor management in the financial arena has long been a compliance hassle. Not only do FIs and NBFIs need risk management processes to verify that their vendors have stable cash flow and will remain financially solvent; they must also assure their vendors have sound cybersecurity practices so they can be trusted to handle sensitive data.

Many FIs and NBFIs incorporate SOC 1, SOC 2, and SOC 3 reports in their vendor management practices. That’s a good start, but vendor risk management can’t end there. Tools must be leveraged to manage policies and procedures, streamline workflows, document communication, maintain audit trails, and provide reporting.

Enhance Risk Management with Automation from Reciprocity ROAR

Reciprocity ROAR provides real-time insight into threats. Instead of using spreadsheets to manage your compliance requirements, adopt ZenComply to streamline evidence and audit management for all of your compliance frameworks. ZenRisk’s risk and workflow management software is intuitive and easy to use.

It is a single source of truth that ensures your organization is always audit-ready. Policies and procedures are revision-controlled and easy to find in the document repository. Workflow management features offer easy tracking, automated reminders, and audit trails. Insightful reporting and dashboards provide visibility to gaps and high-risk areas.

With Reciprocity ROAR you can distribute due diligence questionnaires, store completed questionnaires, track status, and even assign a risk score based on responses. Institutions can also perform risk assessments, create business continuity plans, map controls across frameworks, and determine the additional steps necessary for mitigating risk.

Schedule a demo today for more information on how the Reciprocity ROAR platform empowers financial institutions.