At best, risk managers end up being tolerated as a necessary evil and constraint to innovation, rather than valuable partners to significantly lift a firm’s growth potential. Today, risk managers are tasked to identify and mitigate risks in day-to-day business decisions. This inherently assumes that risk managers in the office are going to be always better at identifying risks in new business ventures than the individuals on the ground who are charged to lead and execute them. In a fast changing world, this is particularly problematic because it is more likely to place unrealistic expectations on risk managers. Of greater concern, it may not permit timely responses to emerging risks. It also slows the pace at which a firm can learn from and adapt their risk tolerance to new ways of doing business as it gains experience. The path forward therefore lies in making business leaders better risk managers. The role of risk 2/5  BIS central bankers' speeches  managers in turn should evolve from directly supporting individual business decisions, to continuously pushing for more clearly defined risk appetite frameworks through engagements with the board, senior management and business leaders; by ensuring that management guidance is consistent with the risk appetite; and communicating the risk appetite in precise and specific terms across the organisation. Organisations will rarely get it right the first time.
But encouraging a strong focus on providing as much clarity as possible in setting the risk appetite for the organisation sets the tone and internal conditions for ongoing improvements in risk culture; it provides better alignment between business decisions and a firm’s risk tolerance; and ultimately, delivers a better balance between taking on too much risks and inhibiting the kind of innovation that we depend on to build successful businesses and economies. Achieving these outcomes is more urgent than we might think. In an online poll by Marsh last year, 91% of risk professionals agreed that understanding technological innovation is crucial to stay at the forefront of their industry. This corroborates the 2017 Excellence in Risk Management report – also by Marsh and the Risk & Insurance Management Society – which revealed that more than 90% of companies are either using or evaluating disruptive technologies, such as the Internet of Things and wearable technologies. Yet, more than half of organisations have not conducted risk assessments to deeply understand the risks associated with disruptive technologies, much less define the organisation’s appetite for such risks. Less than half (48%) of respondents said they have a cross-functional risk committee that manages these risks, never mind how effectively. And even this percentage has dropped from 52% in 2016 and 62% five years ago. These observations point to considerable scope to improve current approaches to risk management – at a time where business lines are already venturing into unchartered territory.