The role that risk libraries play in risk management is foundational to managing and optimizing risk successfully. There is a lot of discussion on how risk teams works to manage risks effectively and how organizational strategy sets risk appetite. As organizations evolve, risk libraries or taxonomies must also mature to ensure that risk management aligns with strategic objectives

The Role of Risk Libraries

A risk library is basically the complete list of risks that has been compiled by the risk management department of an organization. Any organization that works in a heavily regulated industry (like the financial sector) will have an extensive list of risks that are being tracked and monitored throughout the year by the risk experts within the organization. The risk team also looks at the controls that are in place to mitigate the risks in the risk library and ensures that the controls are performing up to standard.

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A bank can only successfully mitigate operational and financial risks if it is aware of those risks. The problem is that the risks that an organization must manage are not static in nature. An organization cannot simply create a risk library and continue using it for the future. Instead, the risk team must continuously look for emerging risks and ensure that they are included in the risk library being used within the organization. The risks that are already in the library must also be evaluated periodically to ensure that they are still a significant risk which the bank needs to manage. If an organization does not detect an emerging risk on time, then it risks being blindsided by the effect of that risk on the organization.

Improving Risk Management Via External Risk Libraries

Banks can focus more on risk libraries and ask their risk management team to continuously evaluate the library being used within the organization. There are two big problems with this approach. The first problem is that this practice can be unsustainable for smaller organizations. Continuously evaluating the risk library requires dedication and commitment from the risk management team which may already have a lot of workload. The second major problem with this approach is that the people evaluating the risk libraries are the same people that created the risk library in the first place. This means that if they missed some risks in the first chance because they did not think of them, then there is a chance that they will miss those risks again.

The role of risk libraries in risk management is foundational to manage & optimize risk successfully. As organizations evolve, risk libraries must also mature. Click To Tweet

There are external risk libraries provide a much better opportunity for organizations to improve the way they manage risks. These risk libraries are created by industry experts with input from industry peers. Instead of relying on a risk library that was created solely by the employees within the risk management team, the organization can utilize a risk library that has been created by multiple risk experts who have experience in multiple organizations.

When an organization’s risk management team receives an external risk library which already has hundreds of risks listed, it makes their job easier and allows them to quickly improve the risk management framework of the organization. They must go through all the risks that have been collected by industry experts and then evaluate the impact of those risks on the organization and its business units. The risk library alerts the risk team about risks they may not have thought of and therefore did not have any controls in place for in their risk management processes.

Evolving with Time

Another major advantage of external risk libraries is the fact that they are updated as new risks emerge frequently. They are often new risks which an organization might miss. In 2021 many organizations are now focusing on risks that were created due to operational measures taken in 2020. Many organizations introduced work from home policies to ensure business continuity. While this proved to be a fantastic idea to ensure that employees could continue to provide essential services without putting themselves at risk, organizations quickly discovered that this also introduced many new risks into the business environment that needed to be managed and controlled.

Using external risk libraries that are continuously being updated with the latest risks ensures that businesses will always know about new risks that are affecting organizations within their industry. Instead of simply being limited to the knowledge and outreach of the risk team working within the organization, organizations can utilize the combined industry knowledge and expertise to understand risks better.


Enterprise Risk Management Software

Interested in seeing how a risk library can help your organization? Watch an expert webinar by ABA’s Ryan Rasske, SVP, Risk & Compliance Markets and Carl McCauley, CEO of 360factors – ABA’s endorsed solution provider for risk and compliance management – to learn more about the ABA risk library and how it can benefit your bank. Using content from the ABA Risk Library, identify possible weaknesses in your bank’s risk register and introduce a structured risk library to identify your bank’s top risks more efficiently.