The role that risk libraries play in risk management is foundational to managing and optimizing risk successfully. There is a lot of discussion on how risk teams work to manage risks effectively and how organizational strategy sets risk appetite. As organizations evolve, risk libraries or taxonomies must also mature to ensure that risk management aligns with strategic objectives. Businesses need to manage as many of the risks as they can to succeed. However, they can only manage the risks they know about. There is always a chance that a critical risk may have been overlooked and may end up damaging the organization. That’s where a risk library can help.

Compliance teams understand the role of risk libraries to better manage risk for their organizations.

What is a Risk Library?

A risk library is a compendium of all the risks that affect businesses in a specified industry. Financial institutions can choose risk libraries developed by industry experts and ensure that all the important and relevant risks are monitored, mitigated, and managed.

Risk libraries work even better when integrated directly into the risk management platform used within an organization. The platform can instantly import all the risks and begin monitoring them. Each risk can be linked to a process or document, ensuring that the entire organization understands what needs to be done to minimize enterprise risks.

The Role of Risk Libraries in Compliance Management

Any organization that works in a heavily regulated industry (like the financial sector) will have an extensive list of risks that are being tracked and monitored throughout the year by the risk experts within the organization. The risk team also looks at the controls that are in place to mitigate the risks in the risk library and ensures that the controls are performing up to standard.

A bank can only successfully mitigate operational and financial risks if it is aware of those risks. The problem is that the risks that an organization must manage are not static in nature. An organization cannot simply create a risk library and continue using it for the future.

Instead, the risk team must continuously look for emerging risks and ensure that they are included in the risk library being used within the organization. The risks that are already in the library must also be evaluated periodically to ensure that they are still a significant risk which the bank needs to manage. If an organization does not detect an emerging risk on time, then it is open to being blindsided by its effects.

Improving Risk Management Via External Risk Libraries

Banks tend to focus more on risk libraries and ask their risk management team to continuously evaluate the library being used within the organization. There are two big problems with this approach to risk management.

The first problem is that this practice can be unsustainable for smaller organizations. Continuously evaluating the risk library requires dedication and commitment from the risk management team which may already have a big workload. However, it does not make it any less necessary for these organizations.

The second major problem with this approach is that the people evaluating the risk libraries are the same people that created the risk library in the first place. This means that if they missed some risks in the first chance because they did not think of them, then there is a chance that they will miss those risks again.

External risk libraries provide a much better opportunity for organizations to improve the way they manage risks. These risk libraries are created by industry experts with input from industry peers. Instead of relying on a risk library that was created solely by the employees within the risk management team, the organization can utilize a risk library that has been created by multiple risk experts who have experience in multiple organizations.

Have a look at the difference between external and internal risk libraries:

Feature Internal Risk Library External Risk Library
Primary Source Internal workshops, historical incident data, audit reports, and SME interviews. Industry consortiums, regulatory bodies (NIST, ISO), specialized vendors, or consulting firms.
Relevance & Specificity Tailored to the organization’s unique jargon, specific processes, and structure. Requires “pruning” to remove non-applicable risks.
Blind Spots Limited to what the team already knows or has experienced. Often misses emerging industry threats. Designed to uncover “unknown unknowns” by leveraging data from peer organizations.
Maintenance & Updates Requires internal resources to constantly scan the horizon and manually update. Vendors/bodies update libraries regularly based on global trends, new regulations, and peer data.
Benchmarking Custom taxonomies make it hard to compare risk exposure with peer organizations. Standardized taxonomies allow for direct benchmarking against industry averages.
Implementation Speed Requires months of workshops, drafting, and consensus-building to create from scratch. Can be imported immediately (“off-the-shelf”) and then refined.
Cost Structure Hidden costs in employee hours (SMEs, Risk Managers) spent building and maintaining it. Subscription fees or one-time purchase costs (though often cheaper than the labor to build from scratch).
Regulatory Alignment Must be manually mapped to regulations, increasing the risk of compliance gaps. Often comes pre-mapped to major frameworks (ISO 27001, SOX, GDPR, NIST), reducing compliance effort.

An external risk library which already has hundreds of risks listed makes the job of the compliance team that much easier and allows them to quickly improve the risk management framework of the organization.

Compliance experts must go through all the risks that have been collected by industry experts and then evaluate the impact of those risks on the organization and its business units. The risk library alerts the risk team about risks they may not have thought of and therefore did not have any controls in place for in the risk management process.

The Use of Risk Libraries Moving Forward

Another major advantage of external risk libraries is the fact that they are updated as new risks emerge frequently. These are often new risks which an organization might miss through its own operational framework.

Using external risk libraries that are continuously being updated with the latest risks ensures that businesses will always know about new risks that are affecting organizations within their industry. The use of AI-driven software like Predict360 is helping organizations in the financial sector access these libraries.

Instead of simply being limited to the knowledge and outreach of the risk team working within the organization, organizations can utilize the combined industry knowledge and expertise to understand risks better.