top of page

The 5-Step Risk Management Process

For financial institutions, risk management is critical to maintaining a stable and profitable business. Here are the five steps of risk management:

Step 1: Identify Your Risks

Financial institutions face a variety of risks, including credit risk, market risk, operational risk, and liquidity risk, among others. Financial institutions need to identify all of the potential risks they face, as well as any emerging risks in their operating environment, such as changes in regulations or economic conditions.

Step 2: Analyze Risks

Once the risks have been identified, financial institutions need to analyse each one to understand its potential impact on the institution. This involves assessing the likelihood of the risk occurring, as well as the severity of its potential impact.

Step 3: Evaluate and Prioritize Risk

Based on the analysis of each risk, financial institutions should rank and prioritise them in order of their severity and potential impact on the institution's profitability and stability. This allows the institution to focus its risk management efforts on the most critical risks.

Step 4: Treat Your Risks

Financial institutions can use various strategies to treat their risks, including risk avoidance, risk reduction, risk transfer, and risk acceptance. For example, a financial institution might choose to avoid a particular type of investment that carries too much risk, or it might reduce risk by diversifying its portfolio. Alternatively, it might transfer risk by purchasing insurance or accepting the risk and having a contingency plan in place to minimise the impact.

Step 5: Monitor Your Risks

Finally, financial institutions must regularly monitor and review their risk management strategies to ensure they remain effective. This involves tracking the performance of the institution's investments and analysing any changes in the operating environment that may impact the institution's risk profile. By doing so, financial institutions can make informed decisions about their risk management strategies and make adjustments as needed to maintain a stable and profitable business.

One of the best ways to carry out the risk management process is by using Complok’s automated one-stop solution for compliance risk management.

Our mission is to provide compliance teams with peace of mind in risk management.

Get early access.

bottom of page