KEY RISK CONSIDERATIONS Banks operate in a complex environment filled with risks and challenges that significantly influence their operations and strategic decisions. These risks, ranging from economic conditions to regulatory compliance, have a profound impact on banks and the CAEs managing the internal audit function. The following are four key risks that CAEs must consider: • Liquidity Risk: CAEs should make sure their organization has strategies, policies and practices to manage liquidity risk in accordance with the organization’s risk profile and help ensure liquidity. CAEs must install procedures to test liquidity ratios and make sure there is sufficient stress testing. In addition, CAEs can utilize contingency funding plans to assess the completeness, feasibility and effectiveness of liquidity stress tests. • Strategic Risk: The connection between bank strategies with long-term market trends and investor expectations is drawing greater attention. CAEs must orchestrate strategic planning and rigorous risk assessment processes to help with compliance assurance, proactive risk management, and organizational and strategic readiness. • Regulatory and Compliance Risk: The introduction of Fundamental Review of the Trading Book regulations imposing stringent capital requirements and risk management standards will require CAEs to adapt their operations to meet these new regulatory demands and avert potential compliance issues. As such, CAEs must stay agile to adapt to the fast-paced regulatory environment and have structured and sustainable approaches to help document regulatory requirements, understand risks and improve decision-making. • Credit/Counterparty Risk: CAEs should develop a comprehensive assessment of the organization’s credit and counterparty risk, which encompasses financial metrics as well as qualitative aspects such as operational resilience, legal implications and risk models. Risk models should utilize credit ratings, exposure limits, collateral and market conditions to evaluate risks. CAEs also should consider the organization’s risk profile by evaluating a counterparty’s creditworthiness and potential vulnerabilities. A CAE’S ROAD MAP FOR SUCCESS Addressing the key risk areas requires a holistic internal audit approach that integrates proactive risk assessment, compliance and strategic planning. Developing robust policies that effectively identify and manage these risk issues early can help provide enduring best practices over the long term. Embracing these trends and emerging technologies, while fostering a culture of adaptability and innovation, can help CAEs adeptly navigate an evolving banking horizon with confidence and steer their organizations toward sustainable and responsible growth. Prashant is a principal with extensive experience in risk, regulatory compliance, accounting and IT application. He leads the development and growth of the Insurance Practice, for the second and third lines of defense, focused on internal audit and risk management. His areas of expertise include internal audit, SOX, ERM, project and team management, process transformation, and enterprise risk management. His experience encompasses evaluation and build-out of internal audit assurance analytics programs (vision, mission, tools and technologies, structure and staffing, best fit future state recommendations, including KPI and metrics) and process transformation build-out focused on integrating risk management and financial reporting functions to be more efficient and effective. He has also led the build-out of the internal audit and SOX functions; developed ERM programs across various risk verticals, such as operational risk, model risk, credit risk, etc.; and assisted with the execution of internal audits of complex areas such as liquidity, model risk and investments. Prashant is a graduate of Pace University, New York, New York, with a B.S. in accounting. 20 WEST VIRGINIA BANKER
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