Simple steps to Automate and Standardise your Risk & Control Self Assessment (RCSA)

Simple steps to Automate and Standardise your Risk & Control Self Assessment (RCSA)

Vinod Menon
Vinod Menon
Chief Product Officer
Vinod Menon
Vinod Menon
Chief Product Officer

Risk and Control Self Assessment process is a widely accepted methodology used by banks, financial companies, insurance companies and others to identify and assess the operational risk. Even though it’s popular, only few firms have been able to get the benefit of the same, as the process is cumbersome.

The Risk Control Self Assessment process helps the firm to

1. Identify and assess the risk
The RCSA program helps to understand the risks across multiple business lines. As the same is a periodic activity new risks can get added to the list and old risks would be completely mitigated and hence removed from the list. The risks teams, post identifying the risks, carry out the risk assessment part based on the likelihood and impact scale.

2. Set controls and monitor their effectiveness
Once the risks are identified and assessed the next step is to implement the right controls based on the severity of the risk. During the RCSA program, control testing is also carried out to check their effectiveness. During this process, new controls will be introduced, replacing the old ones due to their ineffectiveness.

3. Quantification of residual risk
Inherent risk is the natural risk level in a process and residual risk is the level of risk after applying the controls. Risk managers are primarily interested in high residual risk items as these are risks which can impact the firm and require close monitoring.

Despite RCSA being a widely accepted process, firms use this methodology as a check box items because of the exhaustive manual process. Operational risk managers are required to have complete clarity of the process and should be able to guide and direct the stakeholders.

As a best practice, the firm is required to carry out the following steps:

a) Risk & Control Library
A library of all risks and controls to be maintained depending on the nature of business and a methodology to continuously review the same

b) Risk & Control Model
Depending upon the likelihood and impact, a risk model is to be defined and similarly, based on design and control effectiveness, the control models are to be defined. This helps in computing your Inherent risk and residual risk numbers.

c) Mapping of Risk and Control
For each department or business line the risks to be mapped. This will help you to estimate the inherent risk. In case there is a high inherent risk, risk teams need to apply the right controls. The unattended or open risk i.e. risk after applying the controls are the residual risk and the risk teams have clear idea on the status of the same across multiple business lines.

d) RCSA Automation
Firms should set up a policy to carry out an RCSA at least twice in a year. A standardised checklist of the risks and controls assessment to be created and shared across to the stakeholders for their input. Depending on the periodicity this should go as a task to the stakeholders with constant reminders. Responses should go through a workflow to seek approvals of the senior line function.

e) Action Plan
During the RCSA program, if control weaknesses and deficiencies are identified, firms should look at implementing an action or remediation plan. An action plan is a plan which can be quickly implemented without any major challenges – typically less than a week. However, a remediation plan is something which is a long-drawn process. A remediation will have a series of steps, involving multiple departments and could range anywhere from weeks to months. All action and remediation plans are to be allocated to responsible officials and tracked closely.

Interested to implement an effective Risk and Control Self Assessment process in your organization? Talk to our expert here.

Recent Blog’s

Share

Explore more

Key Risk Indicators -A Powerful Tool to Anticipate Your Risk Within the Enterprise
Risk Management

Key Risk Indicators -A Powerful Tool to Anticipate Your Risk Within the Enterprise

In simple terms, Key Risk Indicator (KRI) is a metric used to measure the level of exposure to risk. These are indicators that denote the …

Hongkong’s Regulations for Operational Resilience
Operational Resilience

Hongkong’s Regulations for Operational Resilience

On 22nd December, 2021 HKMA (Hong Kong Monetary Authority) came up with a Supervisory Policy Manual for Operational Resilience to provide Authorized Institutions (AI) with …

Irelands’ Financial Service Sector Guidance on Operational Resilience
Operational Resilience

Irelands’ Financial Service Sector Guidance on Operational Resilience

The Central Bank of Ireland`s objective of this guidance is to communicate to industry how to prepare for, respond to and recover and learn from …

New Operational Resilience Regulation
Operational Resilience

New Operational Resilience Regulation for Financial Institutions in United States (USA)

The Federal Reserve, the Central Bank of the United States in August 2021 has released a paper intended to help community banks assess threats when …

Process Mapping is an important step in building an Operational Resilience Framework
Operational Resilience

Process Mapping is an important step in building an Operational Resilience Framework

The Covid -19 pandemic has clearly shown two trends within firms: The intensified use of technology and Operations can be managed through digital work force …

What is Game-Based Employee Onboarding? Tips and tricks to implement the right gamification strategy
Game-based Learning

What is Game-Based Employee Onboarding? Tips and tricks to implement the right gamification strategy

Learning begins with joining. Effective Onboarding contributes to a newbie commencing with confidence, feeling supported, and acclimatizing much sooner. Conversely, employees who spend weeks and …

Strategies for Improving Banks’ Operating Efficiency
Digital Transformation

Strategies for Improving Banks’ Operating Efficiency

Banks occupy a place of pride because of its structure of undivided attention and contemporary functions. They have come an extended way from merely performing …

Get started with Digital Identity Verification
Digital Identity

Get started with Digital Identity Verification

In a growing interconnected digital economy, identity verification of an individual’s real-world identity against their digital one has become ever critical in fraud detection. The …

Growing Importance of Operational Resilience in the Digital Era
Operational Resilience

Growing Importance of Operational Resilience in the Digital Era

Operational Resilience assumes that things will go wrong, and it will force organizations to plan on how to recover from the disruption. It is a …

Why are organizations jumping onto the AI-enabled Identity verification bandwagon?
Digital Identity

Why are organizations jumping onto the AI-enabled Identity verification bandwagon?

Who has not experienced being asked to show some kind of government ID, be it to receive your courier, or check into a hotel, or …

What is Identity Proofing?
Digital Identity

What is Identity Proofing?

As per the Digital Identity Guidelines published by NIST, a US agency, Identity Proofing is verifying the claimed identity of an applicant by authenticating the …

New Amendment to KYC Regulation by RBI
Digital Identity

New Amendment to KYC Regulation by RBI – 10th May, 2021

In Jan 2020, Reserve Bank of India amended the KYC norms allowing banks and other lending institutions to use Video based Customer Identification Process (VCIP) …

5 Steps to a Successful Execution of a Digital Transformation Project
Digital Transformation

5 Steps to a Successful Execution of a Digital Transformation Project

Digital Transformation is bringing about a radical shift in the way you run your business, deliver services or manage your customers. The objective of digital …