1st Line Risk Champions: Is there a magic number?

It is a common practice within the financial services firms to appoint 1st Line Operational Risk coordinators, or risk champions (RCs), embedded within each area.??Over the years, there has been a trend of growing the number of 1st?Line RCs?with the aim to increase 1st line risk ownership and accountability. Controversially, there has also been a reverse trend of?reducing 1st?line risk resources to centralise, achieve cost savings or build up 2nd?line capabilities instead.??

Results of the live poll from the industry Best Practice Operational Risk forum highlighted that varied approaches continue to be adopted when it comes to RC model implementation (graph above):

-???????A third of respondents (29%) had extensive 1st?Line Risk and Control departments, representing 5-10% of total staff and the role covering a?wide range of governance, risk and compliance (GRC) related tasks;

-???????18% opted for a pragmatic approach, RCs being 1-5% of total staff, a combination of full-time RCs in larger business / support units and part-time resources in smaller areas;

-???????Another 29% adopted a minimalistic stance, with predominantly part-time Risk Champions operating as liaisons / point persons between the 2nd?line Risk and the business;

-???????Lastly, 24% of voting organisations did not advertise the RC positions, deeming it more effective for the 2nd?line Risk department to communicate with the business directly.

Designing?a successful structure may not be straightforward and at times, it requires a number of iterations to get it right. Indeed, majority of participants noted that regardless of the number of RCs in place, further thought and potential improvements were needed to increase the effectiveness (65%, graph below).

In theory, placing Operational Risk experts in the first line - in addition to having an independent 2nd?line expert Risk function - should double the benefits.?

In practice, however, models are implemented by people; consequently, a great deal depends on the personalities of the individuals and the way they embody the different lines of defense. The effectiveness is a combination of contributory factors, which range from very complex, for example getting the risk culture and the tone from the top right, to very simple, such as having a clear job description of the coordinator role.

In conclusion, Operational Risk practitioners in both the first and second lines must work together, completely in sync, towards a common goal of augmenting the value of risk management within the organization.

As?Patrick Lencioni, American author of books on business and team management, said: “Teamwork begins by building trust”. Reaching out to each other to build the bridge and develop solid relationship is instrumental to achieving success.