Creating a Risk function appropriate for a modern Asset Finance Business

The Problem

Our client was a leading financial services business providing vital asset finance and leasing services to growing UK businesses, with a portfolio covering consumer, vehicle, invoice and equipment finance.

We had been engaged to help them enhance their overall business performance through a series of Board and Organisational level interventions. A core part of their problem was that they were operating as four discrete operations, without an integrated risk operating model which was adequate for a modern financial services company. We demonstrated to our clients across the separate business divisions that they needed to establish an integrated, ‘second line’ Risk function that would provide effective oversight and control over their wide portfolio of assets; one which could operate across all the business units and exercise influence and control through a structure which clearly separated duties. The challenge was to design and implement such an operating model without the need for wholesale re-organisation within the established first line of defence.

Our Solution

We demonstrated to our client how the lines of defence should operate and agreed to use our proprietary Credit Risk operating model as the basis for designing an appropriate new organisational structure that would fulfil the second line function.

We worked through a number of organisational options with the business unit Heads of Risk and the MDs to ensure the agreed operating model was appropriate for the organisation and would work effectively.  We needed to convince the client that there was a role within the Second Line of Defence - a Group Director of Credit Risk - which would provide oversight and experience to the team.

We defined the new structure and roles, based on the operating model, and ensured these were approved by the Executive team, the CRO, and the wider Risk community and change programme.  We retained much of the existing First line of defence within the risk functions of each business.  We designed a central role of oversight, challenge and scrutiny.

We created a joint Risk Committee, comprising the Heads of Risk, which was used as the ‘steering group’ to oversee the changes.

We planned the development of each component of the Risk Model - covering Policy Management, Risk Appetite, Delegated Authority Oversight, Portfolio Management, Sanctioning Referral and Oversight, Credit Rules and their Management, and Oversight. In some cases we had to show the client the level of detail and granularity needed in these documents. 

We built each component and safely transferred responsibility for the new function to the newly appointed Group Director of Credit Risk.

Client's Benefits

The second line of defence is now in place and has provided our client with:

  • Greater definition of the risk appetite and stronger controls over delegated authority
  • A structured approach to managing escalation of risks and sanctioning via the Credit Risk Committee
  • More transparency on the overall portfolio and its profitability using a central risk report which will evolve into a more formal portfolio management approach and toolkit
  • A way for the Chief Operating Officer to make informed decisions about the allocation of capital
  • The ability to increase the risk management skillset and share best practice across the Risk community
  • A method for assurance through an independent and second pair of eyes
  • In short a robust risk operating model appropriate for a modern financial services company without the need for wholesale organisational change.
 
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