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Have you ever wondered if your approach to risk management is holding back your company's growth potential?
In today’s complex and highly regulated landscape, companies, institutions, and enterprises face increasing challenges in understanding and managing risk effectively. Many teams encounter fragmented processes, inconsistent risk management frameworks, and limited integration of risk assessments into daily business decisions. These issues lead not only to inefficiencies but also to greater exposure to regulatory scrutiny, operational disruptions, and financial setbacks.
The Risk and Control Self-Assessment (RCSA) process helps address these common obstacles by offering a structured approach to identifying, evaluating, and managing risks. It empowers leaders and operational teams with tools to transform business processes, improve regulatory compliance, and foster a proactive, risk-aware culture. A core aspect of RCSA is the identification of risks across various functions and activities. By systematically identifying and documenting these risks, organisations gain a clearer picture of potential vulnerabilities that may impact business objectives.
This article explores the essentials of RCSA, demonstrating how it can be a strategic asset to streamline operations, enhance decision-making, and support sustainable growth.
TABLE OF CONTENTS
What is Risk and Control Self-Assessment?
RCSA stands for Risk and Control Self-Assessment. RCSA is as a systematic process to identify, evaluate, and manage risks and internal control environment across their operations. It entails a thorough examination of potential risks that could impede the achievement of business objectives. This also includes an assessment of their likelihood and impact, and an evaluation of existing controls designed to mitigate them.
The RCSA process facilitates the identification of control gaps, control weaknesses, and the implementation of action plans and corrective actions to enhance risk management practices. This ensures regulatory compliance and promotes a proactive risk aware culture within the organisation.
An RCSA is not solely a “business-driven” risk and control self-assessment, though. It also requires risk and control inventories, taxonomies, etc. Often, these frameworks lack maturity, resulting in significant additional work for all parties involved in establishing and integrating the framework. This underscored the need to transform the risk assessment framework presented in the following case study.
Why is an RCSA required?
…results of the bank’s operational risk assessment should be incorporated into the bank’s overall business strategy development process (per above Basel Committee paper page 6)
Effective operational risk management leads to a culture of risks and controls fully embedded across the firm’s business activities and operations. It ensures that business folks understand what a risk is, what a control is and can “put two and two together”.
In that context, the RCSA is a tool that should enable senior management to translate “WHAT” their teams do and “HOW” they do it into resulting risks and required control measures. It also provides educational opportunities for business folks on the consequences, including associated costs, of their operational decisions. When done well, this ensures they manage their business within risk appetite.
This is critically important for both “WHAT” and “HOW” drive:
how senior management and operational teams end-up spending their time (e.g. urgently fixing the latest failed process vs. delivering the right service to their clients); and
the firm’s ability to absorb new business and to scale up. If resources are allocated to managing a fragmented, manual and complex operational environment, they are not available to develop innovative services, support business growth and deliver seamless customer experience.
If the risks arising from the “WHAT” generate value for both customers/clients and shareholders, risks associated with the “HOW” mostly create downside through higher operational costs, undesirable losses and poor customer experience.
The latter type of risks (ie. the downside and costly type) can represent two thirds or more of the operational risk landscape[1] of any given activity. Consequently, control activities can eat up to 80-90% of available resources.
In that context, the RCSA provides a firm with a valuable operational diagnostic
to transform a sub-optimal activity into a simplified, resilient and scalable customer centric business operating model;
to strengthen its cost to income ratio whilst increasing process outcome predictability (ie. reducing risks and undesirable losses) while addressing control weaknesses; and of course;
to enable a more proactive risk mitigation, helping reduce exposure to potential threats and ensuring long-term operational resilience; and
to meet regulatory expectations and control the risk they face.
Need some help? Don’t hesitate to reach out to Aevitium LTD and we will help you to structure an RCSA framework that works for your organisation.
Case Study: Banking RCSA Transformation
Risk and Control Self-Assessment is crucial in the regulated world of financial services. It's not just about compliance; it's a key part of strategic governance. This case study highlights how a leading multinational financial services firm, "The Firm," transformed its risk and control self-assessment RCSA framework. Facing various business key hazards and risks, the firm's board and executive team launched a comprehensive RCSA transformation initiative.
Background
Operating globally with a wide range of services, the firm faced an evolving risk landscape. Their existing RCSA framework and broader Risk Assessment Framework, characterised by fragmented functions and manual processes, failed to provide comprehensive risk insights and governance. Practically, management could not identified the key risks associated with critical processes. Recognising these limitations and responding to regulatory demands, the firm committed to a thorough overhaul of its RCSA and risk assessment framework.
Challenges Faced
Navigating Regulatory Changes: Keeping up with dynamic regulations and meeting global oversight expectations was a constant challenge.
Integrating Risk Assessment: A fragmented risk assessment framework hindered a comprehensive understanding of operational and strategic risks.
Overcoming Data Fragmentation: Disparate data systems and assessment methods led to inefficiencies and potential gaps in risk control.
Modernising Technology: Upgrading the technological framework was essential to support advanced risk analytics and informed decision-making.
Enacting Cultural Change: Shifting to a proactive, integrated approach required significant cultural transformation.
Solutions Implemented
The RCSA transformation focused on:
RCSA Framework Reorientation: The firm recalibrated its risk outlook to align with corporate strategy and capacity-building needs.
Enhancing the Risk Assessment Framework: The bank invested to expand and integrate risk practices, particularly in non-financial risk areas and control identification and optimisation.
Optimising RCSA Capacity: The firm optimised resources, recruited specialised talent, and enhanced regional oversight.
Harmonising Methodologies: Standardising risk, compliance, and financial crime functions ensured comprehensive risk oversight.
Technological Advancements: Effective technological solutions replaced outdated systems across risk, compliance, and financial crime functions.
Data Integration: A unified risk data management framework was established, breaking down data silos for an integrated risk perspective.
Cultural Shift: A top-down approach fostered a risk-aware culture through extensive training and aligned performance metrics.
Outcomes Achieved
Regulatory Approval: The enhanced RCSA framework gained regulatory recognition, reducing oversight.
Improved Risk Insights: Systematic risk coverage and data integration provided actionable insights for proactive risk management.
Risk-Aware Culture: A deeply ingrained risk-aware culture promoted informed decision-making at all organisational levels.
The Firm's endeavour to reinvent its RCSA and Risk Assessment Framework underscores the importance of embracing transformative change in the face of complex risk environments. By integrating advanced technologies, unifying data, and fostering a risk-aware culture, The Firm not only fortified its defences against potential risks but also positioned risk management as a strategic driver for growth and resilience. This case study stands as a testament to the fact that in today's corporate world, a proactive and integrated RCSA and Risk Assessment Framework is fundamental to achieving operational excellence and driving business success.
Embedding RCSA into Day-to-Day Business Management
… The components of the ORMF[2] should be fully integrated into the overall risk management processes of the bank by the first line of defence, adequately reviewed and challenged by the second line of defence, and independently reviewed by the third line of defence… (per above Basel Committee paper page 6)
As a result of the above, RCSA frameworks are usually designed as a standalone framework in the context of the overall operational risk management infrastructure to ensure regulatory compliance, instead of being designed as a business management tool with risk management capabilities.
By contrast, credit risk and market risk activities are usually fully embedded into business decision making. My experience is that business folks operate through them day in and day out, not once a year or only when something breaks down in my experience.
With that in mind, firms have already implemented numerous specialised operational risk assessment tools to address specific business needs and/or meet regulatory requirements. These tools should already be embedded into business processes and be identifying the risks.
Without being exhaustive, here is a list of assessments regulated firms might already have:
Business Continuity
Third Party Risk
Offshoring and out/in-sourcing
Technology Risk
Cyber Risk
Model Risk
EUC Risk
Fraud
Anti-Money Laundering
Health and Safety
Reputational Risk
New Product
New Instrument
New Market
Know Your Customer
Climate Risk
New Contract
New Client
Conflict of Interests
Diversity and Inclusion
Cloud
Regulatory Risk
Etc.
Going forward, I see RCSA being an aggregator of the output of such assessments providing a “live” view on risk exposure and level, control, etc. without conducting a stand-alone self-assessment. This would significantly increase the quality and granularity of the risk and control data, remove significant duplication of work (and secure stronger buy-in from business folks as a result), and ultimately enable better strategic fit.
Arguably, retrofitting these assessments could generate significant rework especially for the framework owner, but I am convinced this would pay-off. The business case would be a matter of opportunity costs supported by stronger risk management outcomes (and less work in the business) vs. continuing to do all the above and RCSA together.
That being said and building from my previous blog post on Risk Oversight, I also believe further integration of risk oversight functions and activities is required to enable a simpler and more embedded management of operational risks, which will mean less frameworks, less policies and an end-to-end approach to risk management.
RCSA Roll-out
I had the opportunity to lead multiple RCSA implementations and it is fair to say, none of them were “perfect”. There are some common features, and mistakes, to be considered (and to be avoided)
Risk Ownership
In my blog post Enabling Board & Senior Management Risk Oversight, I touched on the notion that the Board of Directors is accountable for the risks of their firm. The directors rely in turn on the executives and their teams to manage these risks.
In the context of RCSA, the risk “owners” identify, report and assess the risks they own. This requires establishing clear risk management accountability and responsibility across many executive and operational layers.
This is a headache! And a major impediment to RCSA adoption.
In my experience, organisational chart and official governance, widely used to assign risk ownership, rarely align with how things actually get done in a firm. This has as much to do with the inherent flaws in the concept of the “organisation chart”[3] as it does with the real centre of power(s) being disconnected from the official governance of a firm.
As a result, operational managers, per the official organisational chart structure, do not have any incentive to put their names against some of the risks impacting their departments and they end up either not reporting these risks at all or materially underestimating them. Or they exclude risks that impact their function because they originate upstream.
Practically, a social network analysis would be more relevant to effectively assign leadership responsibility including risk ownership, but I have never seen it used in any of the firms where I worked.
With that in mind, I would at least “neutralise” the notion of risk ownership whilst deploying and maintaining an RCSA. Let the operational team focus on identification and assessment for the activity they run, whilst leaving the “emotions” aside.
It is critical to understand what your starting point is. And this diagnostic must include an understanding on both operational risk framework and risk culture maturity.
When it comes to the level of maturity of the existing operational infrastructure, I have experienced different situations from having nothing, to having scattered and non-standardised “stuff”, to having fully formed but not fit for purpose frameworks.
You can find below a list of required foundational components:
Risk taxonomy
Risk inventory or register
Probability assessment methodology (if you decide to use probability)
Severity assessment combining b) and c) into a common rating
Activity/process/function inventory depending on how you decide to document the activities of your firm
Document control in a Control inventory
Control taxonomy (though not mandatory day 1)
Control self assessment process and framework
Risk decision framework (ie. risk accept or remediate)
Etc.
In addition, the controls process within RCSA includes documenting existing controls and assessing their effectiveness. This step helps organisations ensure that controls are adequate, consistently applied, and aligned with risk appetite.
The list can be longer. But regardless of how granular and complex it is, all those components will have to be applied by non-risk folks at some points.
With this in mind, it is going to be difficult to get business folks to assess risk severity or build a risk register if they don’t understand what a risk is.
The level of risk culture maturity is critical to define how complex you want to be short and medium term (see next section) and to map out how you will roll-out your framework especially when it comes to training and education. This also helps you to determine the required resource model – e.g. establishing a 1LoD Risk Function vs. fully relying on existing resources.
Once the diagnostic is performed, you need to define “a” target state and map out a strategy, or roadmap, to get there.
“A” target state
I wrote “a” because this could change as the level of risk maturity increases across the firm over time. For example, I would not directly connect the RCSA with the various assessments I mentioned in the previous section unless I already have matured risk and control inventories and broad organisational coverage.
The initial target state could target granular risk inventories and registers across all your business activities and legal entities, supported by granular control inventories, to feed into risk reporting and oversight. Stated differently, it is about building the dataset.
Then, the vision can evolve to fully embedding business assessment tools (as per previous section) in addition to strategic and predictive portfolio risk and control management.
“Breaking down” the vision into ambitious but achievable steps makes it more palatable for all stakeholders and this will be better supported through an effective communication strategy.
Communication
The one item I systematically underestimated, and, with hindsight, would have approached differently. Rolling out an RCSA is about leading many people at all levels through a painstaking difficult activity over a multiyear journey. That said, regular communication, on why and what, as well as celebration of achieved RCSA results is key.
This is about business management
Operational Risk frameworks, including RCSAs, should be considered as parts of the wider business decision and management toolkit. They can be – and sometimes should be – designed and rolled out as standalone's but at some point, such tools must converge and be merged within the business environment to become ubiquitous and transparent to business folks, who needs to live and breathe this stuff day in and out.
I have been asked many times – When will we be done?
Based on my experience, success is achieved when risk assessments deliver a behavioural diagnostic that can support business change. Success is achieved when senior executives are put in front of hard strategic realities that lead to cultural transformation. Or more simply, success is achieved when RCSA kick starts the real strategic and value added discussion!
This is no longer only about ticking the regulatory box;effective as low v, and control prliferation it is about leveraging a very relevant tool to support operational and strategic organisational success.
[1] Based on the findings of a new breed of RCSA designed to join-up risk / control expertise with process excellence [2] Operational Risk Management Framework [3] I would recommend reading the book Free Agent Nation by D Pink chapter 8 to have an excellent detailed explanation on the root cause of the problem. To summarise, the organisational chart rarely depicts how things get done in a firm, which is a fundamental problem when it comes to assigning risk responsibilities
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Frequently Asked Questions (FAQs) on Risk and Control Self-Assessment
1. What is RCSA, and why is it important?
RCSA, or risk assessment, is a structured process used by companies, firms, and institutions to identify, evaluate, and manage risks across their operations. It’s essential because it provides a clear picture of potential threats to business objectives, strengthens regulatory compliance, and fosters a proactive, risk-aware culture that supports sustainable growth.
2. What are the main steps in the RCSA process?
The RCSA process generally includes four main steps:
Identifying Risks: Recognising potential threats across functions.
Risk Evaluation: Assessing risks in terms of likelihood and impact.
Control Review: Reviewing existing measures to determine their effectiveness.
Corrective Actions and Mitigation: Making adjustments to address any control gaps or weaknesses.
3. How does RCSA support identifying risks and risk reduction?
This assessment systematically identifies and documents risks, helping teams understand their landscape comprehensively. Through continuous evaluation and the implementation of corrective actions, RCSA also promotes effective mitigation, reducing exposure to potential threats and improving overall resilience.
4. What types of risks does this assessment address?
It can address a broad range of risks, including operational, regulatory, reputational, and financial. It’s particularly useful in identifying threats tied to specific processes, technology, third-party relationships, and new products or services.
5. How can this assessment benefit my company beyond regulatory compliance?
Beyond meeting regulatory expectations, risk assessment helps create a risk-aware culture, enhances decision-making, and supports sustainable growth by reducing inefficiencies and aligning operations with strategic objectives. It also enables leadership to address the root causes of issues proactively rather than reactively.
6. Who is responsible for conducting the assessment?
Typically, operational managers, risk management teams, and senior leadership are involved. The first line of defense, or business units, is responsible for identifying and assessing risks, while the second line of defense, such as compliance or oversight teams, provides review and support. The third line of defense, like internal audit, ensures the process is functioning effectively.
7. What are the common challenges in implementing this framework?
Challenges include aligning risk identification with business objectives, integrating assessments into daily operations, overcoming fragmented or siloed data, and fostering a proactive risk-aware culture. It also requires a strong commitment to corrective actions and ongoing communication to maintain engagement across all levels of the company.
8. How can this framework improve decision-making?
By providing visibility into risks and controls, risk assessment enables leadership to make informed decisions grounded in a clear understanding of risk dynamics. This ensures that operational strategies align with the firm’s risk appetite and long-term goals, driving more reliable and predictable outcomes.
9. Is this a one-time exercise or an ongoing process?
Risk assessment is an ongoing process. To stay effective, it requires continuous monitoring, periodic reassessment, and regular updates to reflect new risks, control improvements, and evolving regulatory standards. An ongoing approach ensures that practices remain aligned with the firm’s changing needs and objectives.
10. How does this assessment interact with other risk management tools?
RCSA often aggregates insights from various tools already in place, such as assessments for cyber risk, third-party risk, business continuity, and regulatory compliance. By integrating these insights, the process provides a “live” view of the firm’s risk exposure, helping to streamline processes and reduce duplication of efforts.