Non-financial Risk Management in the Financial Industry

A Target Operating Model

for Compliance and ESG Risks

1. Auflage 2022

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ISBN (print): 978-3-95647-188-9

ISBN (epub): 978-3-95647-189-6

ISBN (pdf): 978-3-95647-190-2

ISBN (mobi): 978-3-95647-191-9

1. Auflage 2022 © Frankfurt School Verlag / efiport GmbH, Adickesallee 32-34, 60322 Frankfurt am Main

Editors

Foreword

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

2 Definition of Non-Financial Risk in Financial Institutions

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

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

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

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

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

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

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

10 Technical Application and Data Architecture for Non-Financial Risk Management

11 Data Governance in Non-Financial Risk Management

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

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

14 Managing Conduct Risk: Framework and Perspectives

15 Successful ESG Transition: Implications and Challenges for Effective Risk Management

Bibliography

Norbert Gittfriedis 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 Lienkeis 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 Seiferleinis 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 Leiendeckeris 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 Gehrais 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.

Prof. Dr. Douglas Arner, Kerry Holdings Professor in Law, RGC Senior Fellow in Digital Finance and Sustainable Development, Faculty of Law, University of Hong Kong, Hong Kong

Dr. John Ashley, General Manager, Financial Services and Technology, NVIDIA Inc., San Francisco Bay Area

Ulrike Brouzi, Member of the Board of Managing Directors, DZ BANK AG, Frankfurt

Rene Bystron, Project Leader, Boston Consulting Group, Seattle

Dr. Oliver Engels, Chief Risk Officer, Deutsche Börse AG, Frankfurt

Dr. Erasmus Faber, Managing Director, Head of Compliance & Risk Management Germany, Twelve Capital (DE) GmbH, Munich

Lorenzo Fantini, Managing Director & Partner, Boston Consulting Group, Milan

Barbara Fojcik, Project Leader, Boston Consulting Group, Munich

Dr. Jan-Oliver Fröhlich, Project Leader, Boston Consulting Group, Hamburg

Kai Gammelin, Risk prevention and compliance expert in a leading position in the financial industry, Bludenz

Dr. Julia Gebhardt, Partner, Boston Consulting Group, Munich

Dr. Ulrich Göres, Frankfurt

Peter Gürtlschmidt, Mag. MA, Vice President, Head AFC GMIC Corporate & Investment Bank Germany / EMEA, Deutsche Bank AG, Frankfurt

Dr. Katharina Hefter, Managing Director & Partner, Boston Consulting Group, Berlin

Hurdogan Irmak, Head of Risk Management, Isbank, Istanbul

Marc Peter Klein, Ass. jur., Managing Director, Head AFC Corporate & Investment Bank Germany / EMEA, Deutsche Bank AG, Frankfurt

Dr. Michael Lange, Managing Director, Divisional Head Compliance, DZ BANK AG, Frankfurt

Annika Melchert, Manager, BCG Platinion, Dubai

P. Robert Mieszkowski, DZ BANK AG, Frankfurt

Martina Mietzner, Managing Director, Chief Compliance Officer, Bayerische Landesbank, Munich

Burcu Nasuhoglu, Head of Operational Risk Management, Isbank, Istanbul

Dr. Jochen Papenbrock, Financial Services and Technology Developer Relationship Lead EMEA, Gaia-x FAIC Lead, NVIDIA GmbH, Frankfurt