Thierry Lopez, Board member of ALRiM and Chairperson of the ABBL Banking Supervision Committee, says that ESG is changing the face of risk management, not least in the need to address the physical and transition risks inherent in climate change, while the pandemic has forced risk managers to confront new risks including those arising from teleworking.
How is ALRiM interacting with other associations on banking risk management?
Since its creation almost 25 years ago, ALRiM has been collaborating with other Luxembourg associations (ABBL, ALFI, ALCO, ATEL, IIA…) to organise conferences, conduct and publish research on topics related to risk management and many other initiatives. On banking risk management specifically, the collaboration of ALRiM with the ABBL is particularly fruitful:
- The “ABBL and ALRiM Risk Management Conference” which takes place each year in December is “the” event where supervisors, banking experts and leading practitioners meet to explore the latest trends in banking risk management,
- As chairperson of the ABBL Banking Supervision Committee, I collaborate for years with Gilles Pierre (the ABBL Head of Banking regulation & Financial Markets) for the Committee to tackle political and technical issues arising from prudential regulation and from banking supervision. The Committee aims at anticipating regulatory developments, influencing new regulations at national, European and international levels in order to preserve the business model of Luxembourg banks.
« The role of the Risk Manager is not to predict the future, but to make it possible. »
How is ESG reshaping risk management?
ESG includes heterogeneous topics (Environmental, Social and Governance). Therefore, the way to manage related risks is multi-dimensional:
- Governance and social responsibility are conduct-related. Since the 2008 financial crisis, huge and conducive efforts have been made to improve the management of conduct risk, compliance and risk awareness,
- The CSSF has just issued the circular 21/773 on the Management of Climate-related and Environmental Risks which helps pave the way on how institutions and risk managers should address climate change risk. This includes assessing how the direct effect of current and future climate change (physical risk) and the transition towards a greener economy (transition risk) increase credit, operational and all other risks of the Bank. It also means further promoting climate risk culture within the Bank and towards its clients and stakeholders.
What are the risk implications linked to CSSF’s circular 21/769 on Telework?
This circular is well thought for multiple reasons:
- The role of the Risk Manager is not to predict the future, but to make it possible. The pandemic has forced the financial sector to almost telework exclusively. The circular sets the governance and security rules of Telework in post crisis BAU mode with no requirement of any prior approval by the CSSF,
- That said, the liberty of the entities is conditional. Each entity will have to assess to what extent it allows its staff members to work remotely. This assessment should consider the risks of Telework and define limits within which it might be allowed to perform tasks remotely. The role of the Risk function (including the CISO) is therefore pivotal in coordinating and/or challenging and/or performing the various risk assessments;
- Even if counter-intuitive, the circular will reinforce the maintenance of a robust central administration and related substance in Luxembourg, among other reasons because the ultimate responsibility of Telework arrangements lies with the Board of Directors of the supervised entity.