Have Babylon and Florence gotten closer to each other?

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That was the title of an article a global consulting firm published back in 2008. The article stressed the case for aligning risk and finance. The author acknowledged that different histories – the earliest records of risk management have been found in ancient Babylon, some time later the use of double-entry bookkeeping was originated by medieval Florentine merchants – and different strands of professional DNA mean that finance and risk have differing worldviews. The cultural diversity leads to different languages, ways of working, systems, data and processes. External forces – the credit crunch had just stepped into our lives – and internal drivers, such as reduced costs and better resource allocation, demanded strongly for some of the differences and distinctions to be resolved. Big gains could be achieved by aligning risk and finance.


Where are we now, more than 12 years later. Are CFOs and CROs and their respective organizations, processes and systems fully aligned?

The forces and drivers mentioned in 2008 are still relevant. Additional ones have popped up in the last decade, through accounting standards like IFRS 9 and IFRS 17, regulations like Solvency II and Basel IV or reporting requirements in terms of FINREP and COREP. These were driven further along by activities like capital planning or stress testing, and a need for improved insight in performance and better decision making.

“Risk and finance are inextricably linked. Every financial decision should be colored by risk: it is a yin and a yang”, as quoted from one of the global banking CFOs.

So, alignment has matured? Founded properly by data integration and data management, consistent metrics, integrated business processes and IT systems, and interchangeable resources?

From our experience we can conclude that, grosso modo, all financial institutions made progress in a closer alignment between both functions. However, there is still a lot of room for improvement. For smaller organizations, this may be a less complex struggle compared to the large internationally organized enterprises, but a struggle nonetheless.

The need for alignment has been pushed from various angles. For sure reporting regulations and accounting standards have driven finance resources getting closer to their risk colleagues; IFRS 9 have shaken the finance function to better understanding risk driven numbers; FINREP and COREP for banks and Solvency II QRTs for insurers have forced better insights and reports. Growing irritation of senior executives obtaining different reports from various departments for similar metrics urged alignment from another angle.

Finance and Risk functions have been stimulated to invest in common views and mutual understanding of data used for both internal as well as external reporting and analytics. Initiatives for common data definitions and data lineage have popped up, and, for most institutions, are still going on. Nevertheless there are multiple cases which prove that there is still much work to be done: structural reconciliation errors in monthly reporting processes; internal, as well as, external reports that show different numbers for the same metrics – mainly caused by use of multiple definitions for one data attribute – as well as basically poor communication between the finance and the risk departments.


A survey of the Economist back in 2011, already stressed that, although highly beneficial, the alignment exercise wasn’t expected to be a walk in the park. A main barrier for incorporating risk-based data into financial and performance management were poorly integrated systems.

Banks and insurers did start inquiring to build an aligned architecture with common understanding of business processes, data exchanges, and IT systems. We have seen several attempts that were mainly driven by the CFO domain, forced to fail as the CRO domain was not engaged from the start and never caught up. Which brings us the biggest barrier to the two functions working closely together: the primary focus of each is not the same, effecting cultural differences, and, finally, silo behavior. These sorts of attitudes show that a common data set, on its own, is not enough.


There is no alternative. The CFO and CFO have no other choice than strengthening the alignment. Internal as well as external demand on both functions – as referred to in our blog post from April 15, 2020 ‘ The future of finance and risk’ – will not diminish.

Overcoming the impediments to alignment requires the creation of structures for executive and employee interaction so that the two departments understand each other. Differences of focus and culture, however likely they are to occur, do not inevitably cause problems. They do, however, need addressing to ensure collaboration. CFOs and CROs need structures and processes that allow executives in each function to engage in an ongoing conversation so that they understand each other better and work together more efficiently. Subsequently, business processes can be recast in an effort to provide better access to information for internal decision-making, risk management, financial reporting and regulatory compliance.

We are noticing a second wave of finance and risk architecture projects, the goal of which is a single, unified view, drawing on all finance and risk data. Lessons learned from the first wave have been addressed. This time all stakeholders (CRO, CRO, COO, CIO) must be involved from the start, all aiming for a unified, broad based, and transparent exercise towards a better aligned future for finance and risk.

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