As financial services firms navigate an increasingly volatile risk environment, they must focus on several essential factors to identify and develop the risk leaders needed to remain prepared for the future.
The Evolving Role of Chief Risk Officers (CROs)
The responsibilities of CROs have grown significantly over the last decade. Today’s CROs must go beyond traditional risk management, possessing strategic insight, curiosity about emerging risks, organizational influence, agility, and digital expertise. Demand for risk leaders has surged across all three lines of defense, yet many financial services leaders express difficulty in finding and retaining talent.
This role is increasingly complex due to the rise of non-financial risks, such as social, environmental, and governance (ESG) issues, cyberattacks, political instability, climate change, and pandemic-related shifts in employee behavior. These risks, once peripheral, have become central, often interrelated, and scalable. This has led many firms to appoint specialist risk officers in these areas. The prominence of CROs has grown accordingly. In financial services, direct reporting lines are now standard, and risk functions have expanded in size as competition for top talent intensifies across traditional firms, fintechs, digital asset companies, insurance providers, and asset managers.
Adding to the challenge is what I call “retirement risk.” Many CROs report concerns over the loss of institutional knowledge as experienced leaders retire, leaving firms with a gap in succession planning.
Impact of Remote and Hybrid Work on Talent
The shift to remote and hybrid work has presented both opportunities and challenges for financial services firms. While firms can now tap into a broader talent pool, the hybrid model adds complexity, particularly in onboarding new employees and maintaining company culture. Some firms are pushing for a return to the office, even penalizing remote workers through limited promotion opportunities and reduced bonuses. However, firms that successfully balance remote and in-office work will have an edge in attracting and retaining strong risk leadership.
Key Competencies for Future Risk Leaders
- Ability to build and maintain strong relationships
- Experience in managing both financial and non-financial risks
- Excellent communication skills
- Agility
- Proficiency in digital tools and technology
- Intellectual curiosity
- Persuasive influencing skills
- Strong business acumen
We have found that today’s CROs tend to be more open-minded, curious and self-aware than other executives. They excel in solving complex problems and dedicate time to learning. To develop well-rounded risk leaders, firms should provide development opportunities, such as rotating potential leaders through frontline business roles to gain strategic insights and build relationships. Frontline leaders can also benefit from rotating through risk functions to deepen their understanding.
Proficiency in digital tools and technology is increasingly essential, given the rise of cyber and technology risks. Future risk leaders must be well-versed in digital tools and data governance, with a strong grasp of evolving cyber threats and privacy concerns.
Essential Factors for Developing Future Risk Leadership
Organizations have become increasingly committed in defining risk leadership roles and creating development programs to attract, nurture and retain the leaders they require. The following key factors will help them drive their continued progress:
- Broaden hiring beyond traditional second-line roles: Consider candidates from operations, technology, and business roles.
- Risk-specific skill enhancement: Cross-train employees on various risks and provide training for those outside the risk function to retain talent and strengthen the team.
- Standardize hybrid and remote work policies: Ensure these practices support talent attraction and retention.
- Enhance the appeal of the risk function: Highlight the critical role of risk management in ensuring organizational safety and stability.
- Thoughtful onboarding: Adapt onboarding processes to new working norms and ensure that new hires have clear mentors and support.
- Focus on diversity, equity, and inclusion (DE&I): Promote risk management as a dynamic career path, emphasizing the opportunity to learn and advance within the organization.
The role of the CRO will only continue to grow in complexity as the global environment remains uncertain. Financial services firms must think creatively about succession planning, embracing diverse talent pools and developing leaders who are agile, business-savvy, and digitally capable with both financial and non-financial risk experience. By doing so, firms can ensure they have the right risk leaders to navigate the future challenges.