First-line risk management (FLRM) functions have an opportunity to deliver a step change in both effectiveness and efficiency. Over the next five years, FLRM teams can reduce the cost of key nonfinancial risk activities, such as risk assessments and control testing, by 30% to 50% versus today’s cost base. At the same time, they can strengthen risk outcomes by refocusing their mandate, simplifying and standardizing risk programs, and embracing an AI-first way of working.
Why FLRM functions must evolve to meet rising demands
The buildup of these FLRM functions — often referred to as the “control function(s)” or “Line 1B” — has been in response to rising expectations for increased ownership by the first line when managing nonfinancial risks. The specific configuration of an FLRM function is shaped by each bank’s idiosyncrasies, such as regulatory feedback, shift of activities from second line to first line, overall organizational structure, and leaders’ evolving scope. Over time, these functions have expanded to cover a wide range of risk management activities that are often highly manual and costly to execute, limiting effectiveness and efficiency.
Conditions are now ripe for a reset in FLRM, driven by the ongoing easing of regulatory pressure, the evolving maturity of risk programs, and the step change in AI capabilities to accelerate efficiency and effectiveness.
Three moves to reshape FLRM as regulatory pressure eases and AI accelerates
FLRM leaders can seize this moment by following three practical moves we expect to become increasingly prevalent in the industry over the next five years:
- Strategically centralize FLRM activities to clarify scope, concentrate expertise, and capture scale benefits.
- Simplify and standardize risk programs and right-size teams so FLRM can do more with less and shift effort from reactive testing to proactive monitoring.
- Embrace AI to re-engineer, not just optimize — redesigning FLRM workflows around AI agents while humans focus on decision making and oversight.
Together, these moves provide a high-level “how-to” roadmap that includes strategic focus on where to add the most value, a revised FLRM operating model, and redesigned processes and technology — with AI at the core.
