How the resurgence of risk could help unlock innovation

Is one of the UK’s biggest banks really trying to enable innovation by slashing its risk management function?

Risk managers identify, assess and control threats to an organisation's capital, earnings and operations. According to press reports, an internal review at Lloyds Banking Group found that its risk function had become a “blocker to their strategic transformation”. 

“We know people are frustrated by time-consuming processes and ingrained ways of working that impede our ability to be competitive and leave us lagging behind our peers,” it continued, citing two thirds of executives at the firm believing risk stood in the way of progress. Fewer than half of senior staff thought “intelligent risk-taking” was being encouraged.

The outcome: around 175 of LBG’s risk management roles are now on the line, which the BTU union said was like “throwing the baby out with the bathwater” – although there were also reported plans to create new roles focusing on specialist risk and technical expertise.

More is going on here

This news sparked a great deal of discussion, at least in our ecosystem.  

For design practitioners in particular, it could be easy to fall into a perception trap here. Risk teams can sometimes seem difficult to work with, and headlines like these can add fuel to that perception. The logical solution to this view would be simply to cut back risk teams and open the doors to progress.

Having worked with many risk teams who absolutely weren’t out to block innovation, we were curious to find out whether there was a different narrative here. So we spoke with  a senior risk expert at another global financial firm – one you’ve definitely heard of –  who provided another perspective.

We think the reality is more nuanced – and more interesting. Could we be seeing a strategic evolution – the reinvention and resurgence of risk?

Risk teams were never out to crush your spirits

Let’s first eliminate the notion that risk professionals spring out of bed each morning, filled with the desire to crush designers’ dreams. They aren’t motivated by blocking innovation; they are, after all, at the core of the business, and heavily invested in its success. If anything, they have a more complete picture of the landscape, and the different pressures the organisation is under, than those at the sharp end of designing products and services.

After the financial crisis in 2008, firms focused on getting regulation right. That meant financial firms stood up risk teams with a very broad remit, aiming to ensure their business met all its duties in the face of extreme regulatory pressure.

Under these risk generalists, projects were delivered beneath layers of risk checks required to avoid immediate problems, like attracting massive fines, and avoiding bad press or even criminal prosecution. This could be frustrating and onerous for those further down the line, with risk seeming to stymie innovation for designers, sometimes resulting in a lacklustre customer experience.

Of course, those working in risk roles were simply doing what they had to do to ensure the business remained compliant and out of trouble – a thankless task.

Resetting risk

LBG have said they’re “resetting their approach to risk and controls”, which hints at the nuance behind the headlines. The real shift is not towards a free-for-all in which risk barriers are removed. Instead, it’s a realignment from teams of generalists to risk specialists – individuals who can own niches and act as better partners to the business and enable innovation. 

Another change in the risk landscape pertinent to financial firms is, of course, the FCA Consumer Duty. Customer experience is now itself a factor which risk professionals must consider, so CX will now be front and centre when considering the impact of new approaches. We have many teams working on this topic right now. 

As risk teams become more specialised and people-focused, they will be better positioned to work directly with designers, including product and service designers. Risk specialists who deeply understand specific risk domains can provide targeted guidance to design teams, helping them create innovative solutions that still adhere to necessary regulations. 

This collaborative approach, with risk as a partner and enabler rather than appearing to be a blocker, will lead to better outcomes for colleagues and customers alike.

Resurgent risk

So the shift we're seeing isn’t a diminishment of risk management, but its evolution towards more strategic, specialised in-house roles, focused on areas like anti-financial crime, supply chain resilience and cryptocurrencies. The difference these specialist functions will make will be seismic, effecting change across processes, products and services. 

The future of risk is not about blocking progress and change – it never was. Resurgent risk teams will be able to catalyse decision-making and help deliver transformation programmes more quickly. They’ll be working alongside design teams to enable more intelligent, customer-focused innovation, while still balancing external pressures such as the demands of regulators. For customers, that will mean products, services and experiences that consistently move with the times.

Lloyds may have made the headlines with their decision, but it’s a strategic one which won’t have been taken lightly. Our best guess is that risk functions across the board will follow a similar pattern, shifting from cautious generalists into lither, more specialised business units. We think LBG is the first, but it’s likely the first of many.