policies, your board may address questions of social justice, environmental sensitivity, and governance deliberately and with a clear rationale.
Responsiveness is another key attribute of effective governance. It is crucial to understand how significant current events impact the safety and well-being of employees. In addition, board members must also grasp any impact to the institution’s financial reporting, disclosures, and control environment, as this information can sometimes trigger initially unforeseen consequences.
Mitigating risk by staying informed
Environmental concerns may be new territory for financial institution boards, but risk management certainly is not. Knowing and monitoring the full spectrum of risks – both existing and emerging regulatory, operational and financial threats – is a core and crucial function for the board as a whole and each of its members.
The board and audit committee chairs have the most opportunity to receive unbiased information about significant risks to the institution. These leaders should communicate effectively with other board members and have appropriate conversations with external parties. As we begin 2021, cybersecurity risks remain at the forefront of concerns.
That said, it is imperative that the board have a complete understanding of risk tolerances for cyber, compliance and operational risks. Information from a variety of sources can impact risk assessments; newly acquired information may require a re-evaluation of targeted areas during the year.
- Regardless of your primary regulatory agency, the most recent OCC Semiannual Risk Perspective provides a useful overview of operational and financial “hot topics,” including the operational and compliance risks that are currently elevated due to altered work environments and other factors. Credit risk is increasing for many institutions, as well.
- Another publication from the OCC, their Fiscal Year Operating Plan, can also provide insights on what examiners from all agencies may be focusing on during the 2021 examination cycle.
An effective board of directors provides support and direction that helps senior management handle significant events and day-to-day operations, while scrupulously avoiding micromanagement.
A clear understanding of the threat landscape and the board’s role in risk management, combined with a responsive and transparent approach to governance, will help your institution ride out turbulent times and remain well-positioned for long-term success. For additional strategies customized to fit your institution’s unique risk profile, turn to the financial institution experts at Mauldin & Jenkins.