Lloyds Bank is downsizing its risk management department as part of its strategic transformation. The move comes after an internal review revealed that risk management was perceived as a “blocker” hindering progress. Chief Risk Officer Stephen Shelley’s memo to staff highlighted the need to revamp the risk department, acknowledging that cumbersome processes and entrenched ways of working were impeding competitiveness. Interestingly, less than half of Lloyds’ workforce believes that “intelligent risk-taking is encouraged” within the organization.

While risk management is essential for stability and resilience, striking the right balance between risk mitigation and innovation remains a challenge for many financial institutions. Lloyds’ decision reflects its desire to streamline operations and foster a more agile approach to risk management. However, critics argue that such cuts could jeopardize regulatory compliance and overlook potential risks.

In the broader context, risk management plays a crucial role in the financial industry. It allows businesses and individuals to reduce the financial impact of adverse events, ensuring stability and protecting against unexpected losses. As organizations evolve, finding the right equilibrium between risk aversion and growth becomes paramount.

Ultimately, Lloyds aims to move at a greater pace by reshaping its risk function. The bank plans to create new roles focused on specialist risk and technical expertise while reducing existing positions. Balancing risk and opportunity remains a delicate dance, and Lloyds’ actions reflect its commitment to adapt and thrive in a dynamic landscape.

Risk management should be about two key things. 1. Preserving value i.e. reputation, complying with key regulations, solvency, market share and protecting key assets such as people, infrastructure, products, etc 2. Creating value – increasing the chances of success by using insights to inform key decisions in new product development, expansion into new markets, transformational changes to the business, acquiring a new company, diversifying the asset portfolio to include cryptos, etc.

If risk managers are not delivering the above two outcomes effectively, then maybe it is time for the risk function to revisit its processes and question why it should exist. If the business does not see you as a strategic partner, then maybe it is time to revamp the entire risk function. Simply being a cost function is not enough, we must also contribute towards the revenue.