In a fast and connected world, banks and financial institutions are exposed to ever increasing risks which are both internal as well as external. In the coming year the risk management function will have to identify, assess and monitor risks while keeping up with the ever increasing pace of business changes. With business model digitization, institutions will need to automate risk and regulatory compliance processes, especially those that are directly linked in with the business transformation. Possible use cases for this include trade based money laundering, centralization of risk data, consolidating external risk and regulatory intelligence as well as broader digitization of risk management operations. And at the heart of all this lies an ever increasing challenge around data leakages and security, which will get amplified in 2018.Here are the top trends that risk professionals must look out for in 2018:
2017 saw a growing spate of bank data breaches. According to a recent report, highest number of users are subjected to ransomware attacks, at 9.6 percent of all computer users. Data is the new oil, and a miniscule technological oversight can lead to theft of data, most of which is a key to business for the financial sector. 2018 will see data security emerge as an even bigger challenge. Additionally, monetary penalties and reputational loss which come with data breaches will heavily impact the core business functions, damaging the brand.
Countering Trade-based money laundering and checking terror financing
With eight of every ten dollars of the world’s illicit money flow coming from trade-related activities, banks and financial institutions in 2018 will be increasingly required to identify money laundering happening through this route. Curbing the use of trade finance route to aid terror financing will be the biggest priority for the banks in the coming year. Identifying illicit money flow in time will require real time tracking of every suspicious instance of over or under-invoicing, fraudulent counter party and sanctioned shipping routes. Banks will adopt digitization for trade finance compliance and due diligence ensuring only high quality transactions flow through seamlessly, while the dubious ones are reported. The cost of regulators being unsatisfied with the response system to deal with trade finance based money laundering will be too high.
Centralizing internal risk intelligence
The data parked with banks is humongous and is further expected to grow at an annual rate of 50%. Within this data lies a wealth of information which can be leveraged across business function as risk intelligence. Existing legacy risk platform are not equipped to link this data to bring forth relevant intelligence for better business decisions. Current model of risk management is disintegrated and manually driven which leads to loss of important insights / patterns to help risk based decision making. In the coming year, banks will look for a complete and connected risk solution, to manage compliance mandates, mitigate enterprise risk and strengthen the third line of defense (internal audit). Banks embarking on this journey will gain an advantage over its competitors in terms of innovation, time to market, user delight, cost of service, irrespective of the fast changing market landscape and regulatory challenges.
The rate of regulatory activity continues to grow as a recent Thomson Reuters study reflected that 70 per cent of firms anticipate regulators to roll-out even more changes/updates the next year. Since 2004, regulatory updates have increased from around 10 a day to nearly 208 across 725 regulators. While banks are grappling with regulatory change management, there is also an increasing pressure to keep a tab on external risk intelligence related to customers, partners, suppliers and even employees. In 2018, banks will look to leverage trusted and accurate source of risk and regulatory intelligence to meet regulatory obligations, make informed decisions, and help prevent business from inadvertently being impacted by reputational damage.
Crystal balling for risk management
In 2018, risk management strategies, digitization and automation will evolve and embrace new competencies: mastery over data, process standardization and consistency, and systems development modularity as a paradigm of operating; with applications that deliver “in-time” flow of information, facilitate dynamic collaboration, and support governable workflows, data, and model production processes.