Innovation in risk management

Innovation in risk management

By Shannon Harris, Senior Research Executive, Center For Financial Professionals

7th Annual Risk EMEA: Financial Risk & Regulation

24-25 April 2018, London

Effective risk management practices continue to be a top priority for many firms. Undoubtedly, we have progressed further than ever before, but the historic events of the 2008/2009 financial crisis are still a poignant reminder of the potential impacts. In order to mitigate against another financial downturn and strengthen institutions stability, many firms are dedicating vast amounts of resources to sustainable risk management practices.

In support of the upcoming 7th Annual Risk EMEA: Financial Risk & Regulation Summit taking place on the 24-25 April 2018, The Center for Financial Professionals conducted extensive research into the main industry trends. Connecting with 80+ leading professionals, we asked their expert opinions on the top challenges and opportunities within risk management over the next 6-12 months. This highlighted a multitude of interesting topics and themes across different risk disciplines.

One of the key points highlighted from research was the increasing focus on innovation within risk management. Incorporating technological advances within the financial sector is rapidly growing in importance. Year on year we are seeing innovative ideas enter the market and revolutionise the way many firms operate. Some of the key thoughts highlighted from research can be found below.

The debate between the pros and cons of technology within risk management has definitely split opinion. Many industry professionals elaborated on the enhanced opportunities produced by technology, and the multiple benefits to the business. However others commented on the increased risks associated with innovation, and the insecurity of not understanding all of the possible threats.

“Technology is a huge overarching opportunity and weight in terms of banking. It’s how technology can intrude and enhance, and how banking models can capture and identify some of this into their strategic business models. So what element of it is a threat and what element is an opportunity to enhance the business model you are embracing.”

“It is about predicating what happens next, and technology is part of the pie. You’ve got the behavioural aspects, if users are foolish then it leaves you vulnerable. 30 years ago you worried about the root serve but now more of us have got admin rights. That’s the ransom wear targets, so instead of third parties being interested in what a small group of users have got. It’s now third parties are interested in what a broad range of users have got. And that makes people side of things much more complicated”

“A big topic is the ability of risk teams to keep up with new technologies. So we talk a lot in the banks about what capabilities we need to implement new technology. But what we don’t talk about as much is the risk teams and skills and capabilities, how do they keep up? So both internally within banks and also within the regulators as well. This is a big issue and needs to be talked about a lot more”

Aside from the associated risks, there is also the topic of aligning innovation with risk management practices. In theory there are several opportunities and possibilities to integrate technology into the business, but what is feasible? Many industry experts debated whether it was realistic and achievable to integrate and update various elements of the business with technology.  Components like budget, resources and pre-existing architecture could largely impact success.

“How do we leverage technology to actually better manage risk within the organisation? I think that’s a top question. So thinking about the future use of technology, marrying together various elements of the business with technology and cyber.”

 “Some firms may experience issues if they have old infrastructure in place. Trying to update infrastructure can not only be a logistical nightmare, but it can be incredibly costly and time consuming. The idea of revolutionising the industry with a one size fits all technology solution simply won’t work in some cases.”

“Cyber is something we all have to live with and we can never get ahead of but it’s becoming a fact of life. So where does technology fit in with strategic thinking and the evolution of banking. The industry has already largely been updated due to new technologies, but what’s people vision of banking and what will it look like in 10 years time?”

Additionally some of the more technical challenges appeared around regulation and compliance. For example GDPR was regularly mentioned as a leading area of concern for 2018. With the implementation deadline looming ever closer it seems that there are still many unanswered questions. Being ready for implementation and regulatory expectation were among some of the main issues raised.

“One of the main challenges is for businesses to get compliant by May 2018 implementation date. By compliant I mean that firms are sure they can show and demonstrate to data protection regulators that they have valid grounds for all processes they do. Firms need to be confident in what they are doing and be able to communicate this”

“In preparation firms need to make sure an efficient data protection officer has been hired. You need to make sure your data protections officer is efficient and has the right level of authority to get on with the job.”

“Are the regulators going to come in and start looking at GDPR immediately? Are they going to give it some time to let people who are a little bit slower getting compliance? Will they get another 6 months? More clarity would be very helpful, I think the regulators need to come forward and provide more input”

On a whole, innovation within risk management is an increasingly topical area which has generated a lot of debate and discussion. Undoubtedly there are of course several avenues to explore within technology and innovation with just some of the leading areas of concern being mentioned above.

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