Optimizing Control Functions: Achieving Lean and Solid in Meager Times

by Cubillas Ding, June 13, 2008


London, United Kingdom 13 June 2008

Celent presents the strategic underpinnings and best practices for optimizing control functions within financial institutions.

The torrent of regulation since the turn of the decade has been keeping financial institutions arduously engaged in risk and compliance related initiatives, often characterised by overinflated budgets. However, despite intentions to manage the heavy workload of regulatory projects over the past years, the pressures to govern and manage risks have escalated and are continuing to escalate.

The subject of control function efficacy has come back on to the examination table at senior executive levels, driven by substantially increased sensitivity to governance issues, changing "regulatory dynamics," external pressures, internal demands, and severe economic consequences from control failures. In a new report, , Celent advises firms to be cognizant of the required underpinnings for control-related activities, and presents best practices for financial institutions to optimize their control functions.

"Despite multiple pressure points, for many firms, approaching the subject of optimizing internal control functions presents them with a delicate rope to walk on. There is a real fear among executives that if costs and efficiency are emphasized, the reliability of control activities will be compromised," says Cubillas Ding, Celent senior analyst and author of the report.

The balance between the three variables in streamlining control functions...namely, the preservation of integrity, the reduction of costs, and the increase in efficiency...needs to be carefully maintained. "Locating and hitting the ‘sweet spot’ is seldom straightforward, and firms need to adopt a firm-wide approach in assessing control functions," Ding notes.

"Overall, the starting points for re-evaluating controls should not only be to improve efficiency but also to foster firmwide control capabilities which are lean and strong, yet do not hinder the mandate and strategic foundations for specific business lines and support divisions," he adds.

Under the scrutiny of regulatory stakeholders, and in meager times especially, achieving a lean and strong posture is becoming a defensive necessity that forward-thinking firms need to embrace. Market forces are making it less of a luxury. The aims of streamlining should not only be to make control functions more efficient but also to optimize their scope and depth, in order to plug existing gaps and ensure that they continue to be fit-for-purpose.

The 38-page report contains 13 figures and 8 tables. A table of contents is available online.


Members of Celent's Finance, Risk & Compliance research service can download the report electronically by clicking on the icon to the left.  Non-members should contact info@celent.com for more information.


Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

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Table of Contents

London, United Kingdom 13 June 2008

Optimizing Control Functions:  Achieving Lean and Solid in Meager Times 

Executive Summary 3
Introduction 5
Drivers Towards a Tighter Control Environment 6
Compliance 2.0: Emerging Pressure Points 11
Surveying an Institution's Control Activities 13
Nuances Around Various Geographies 15
Addressing the Streamlining Challenge: Actions to Take 15
  Clarify the Three Lines of Defence 15
  Align Activities and Tools with Stakeholder Requirements 17
  Target Your Intended Capability Mix 18
  Align Process-Level Risk Profiles with Control Environment 21
  Adopt the Appropriate Organizational Model 24
Forces That Shape Optimum Design of Control Functions 25
Conclusions -- Looking Forward 33
Appendix 35
  Control Function Capability Mix 35


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