Innovation in risk & operational resilience – assessing progress made and challenges ahead

Innovation in risk & operational resilience – assessing progress made and challenges ahead

By Shannon Harris, Senior Research Executive, CeFPro

Ahead of the 8thAnnual Risk EMEA: Risk, Regulation & Technology Summit taking place on the 11-12 of June in London, the Center for Financial Professionals (CeFPro) conducted an extensive study into technology, innovation and operational resiliency. CeFPro conducted over 100 interviews, surveys and questionnaires with various industry professionals from across EMEA. This was further supported by our FinTech Leaders report, which was completed by nearly 900 professionals providing a comprehensive understanding of the FinTech ecosystem, as well as top rankings of FinTechs. This provided a multitude of data and allowed us to formulated a tailor made agenda for the upcoming Risk EMEA Summit, the full agenda can be found on our website at the following link – www.risk-emea.com. Here, we wish to share just three of the key findings from our research, namely on Data, FinTechs and Resiliency within financial institutions.

In the last decade the financial landscape has transformed beyond recognition due to advances in technology and new forms of innovation. As a result of these changes, customers have benefited from increased transparency, enhanced efficiency and the ability to tailor products and services to suit their needs and requirement. The benefits of incorporating technological advancements within financial institutions are limitless and truly have the potential to revolutionise the industry, some of which have not yet been realised. However this does raise the issue of emerging risk. Being able to adapt to changes in demands, technological advances, as well as resiliency are key concerns, as firms must cope with a large remit of impending and developing risk.

Data
In recent months we have seen how data privacy is an issue which affects multiple industries worldwide. The financial industry is experiencing a tighter environment around data management and privacy as customers and regulators place an increased emphasis on data collection, protection, use and sharing. Historically we have seen how data breaches or miss-use within the industry has led to a loss of customer trust and the reputational risk. In a world where data is perceived to be purchased and traded like a commodity – knowledge is power, as the saying goes, and without data what knowledge would we have – how do firms effectively manage this tool but also limit the risks? Our research for Risk EMEA 2019 showed how some financial institutions are scaling up their privacy and data requirements while others initiated schemes years ago. American Express, for example, not only have a Chief Privacy Officer but argue that they were among the first to distribute an annual privacy policy for card members dating back to the 1970s. Over the last few years, the rise of the CDO – the Chief Data Officer – has also taken hold in many organisations; not least, with the introduction of the EU’s GDPR, Canadian anti-spam/data laws, and California’s data privacy…the trend is certainly moving toward protection. Examples such as these display how data has been an historic problem but requires continual management and monitoring, while maintaining the business needs of organisations. One of the key questions raised from our research was the ability to effectively demonstrate safeguarding procedures to ensure customer satisfaction and meet regulatory obligations; a near impossible task to fully say your data is 100% secure as so many need to access parts of data, leaving the door open for undesirable elements to penetrate systems in innovative ways. So as a risk manager how can you fight against this, stay ahead of regulation and continue to grow your business? Many would argue that the innovation in technology and work undertaken by vendors and FinTechs offer solutions, though offering full-safe schemes is yet unproven.

FinTech
Another topic which heavily featured in our research around innovation and operational resilience was the rise and role of FinTechs. Categorising FinTech is no easy task as it covers such a wide range of topics and institutions. This was highlighted to us as a leading area of concern, many of the participants in our study found that the FinTech ecosystem can be incredibly diverse and complicated. Navigating through this environment can be a delicate task as firms try to manage investment, create collaboration and improve traditional business models.  This also brings into light the potential disruption to traditional banking models, the introduction of challenger banks and start-ups has arguably caused some tension within the industry. The results of our survey found that opinions were widely split over this matter, some encouraged the competition and the increased appetite in the industry. However others were not so optimistic and largely commented on how these new firms were creating harsher environments for the longer established and larger institutions.  Another area regularly mentioned was the future uses of FinTech and its relevance to the industry – blockchain and cryptocurrencies, are a point in question: fads that will fade away, or innovative means that will make the financial system more secure and disruption current monetary norms? More often we are seeing technology enter news areas of the financial world, for example incorporating machine learning into modelling, artificial intelligence in fraud and AML or even the use of biometrics in online banking. FinTech has enormous potential to be used in multiple areas, but how do you know your investment will pay off? We often hear of the success stories of FinTech but not the failures, a huge concern is wasting time, money and resources on a failed project. Risk EMEA 2019 brings an array of industry professionals to address these, other challenges…

Resiliency
Finally, the last topic which was mentioned as a key challenge for the coming months was resiliency. One of the first items raised was the ability to protect customers, having policy and procedure in place which can protect customers is an essential factor to achieve regulatory and consumer satisfaction. From a customer perspective you will naturally trust a firm which is more resilient to things such as cyber-attacks, data breaches and general security failures – ultimately, reputational risk is at stake, as Warren Buffett is famously quoted saying ‘It takes 20 years to build a reputation and five minutes to ruin it’.

Another key concern was the growing dependency on third party technology, financial institutions must ensure their third party providers and vendors are held to the same standards and will also be resilient. A failure in their operations would not only cause disruption but may also cause a loss in customer faith. Working with third parties is an inevitable need in any modern firm, but having a continual monitoring and management procedure is essential to have a sustainable partnership. Lastly many of the survey participants commented on how cyber risk and technological changes are creating are increasing challenges to be resilient. Advancements happen rapidly within this sector and fraudsters and criminals are keeping up with the pace of change. So as risk manager how do you firstly keep up to date with new technology and secondly stay ahead of the criminals. This is a continual cycle which will only intensify as the industry continues to grow and change.

To explore these themes further The Center for Financial Professionals will be discussing these areas and more at our upcoming 8thAnnual Risk EMEA Summit, taking place on the 11-12 of June in London. The two day multi-stream event has a dedicated workstream which will cover Innovation in Risk & Operational Resilience, as well as two other simultaneous streams on Market Trends and Credit Risk. Within the Innovation and Operational Resilience stream, leading industry professionals will address topics such as RegTech, challenger banks, FinTech, Data, DLT, cyber risk, resiliency, conduct risk and much more. To view the full agenda and speaker line up please visit our website at www.risk-emea.com

In addition, if you wish to download CeFPro’s international end-user reports, you can do so on areas such as Cyber Risk within Third Parties, FinTech Leaders and Vendor Third Party Risk at https://www.cefpro.com/reports/ Or alternatively for any other questions please feel free to contact me at Shannon.harris@cefpro.com

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