Governance, Risk and Compliance Disruption
Author: Connuil McEvedy
By 2025, expectations of banks and financial institutions, and engagements with these organisations, will be fundamentally different from what they are today. Technology, and the ways in which it is used, will change the products, business models and services offered by banks and financial institutions. The mobility and transferability of customers will increase through technology. Risk management, as a set of practices, and as a profession, must evolve and mature to support these organisations.
Customers’ expectations of financial institutions will increase as technology and new business models emerge and change – risk management must evolve and mature to support these organisations.
How does risk management help an organisation ‘win’ in asymmetric, unknown and chaotic environments where we only have current capability, capacity and capital to prepare for, and respond to, events and behaviours?
Risk Management is a maturing profession.
The positive benefits of effective risk management practices can be difficult to explain to internal and external stakeholders as it is often initially discussed in negative language and outcomes.
For a variety of reasons, a vast majority of organisations and functions often address risk management too late, reducing the benefits and pragmatic outcomes available. This reduced time and limited engagement often impairs the ability of risk management professionals to provide frank, fearless and pragmatic solutions.
Customer expectations
Customers’ expectations of banking services will increase as technology and new business models emerge and evolve. These expectations include on-demand delivery and response, security and privacy by design and default, as well as a stronger voice on the organisation’s personal impacts and social licence to operate.
To be efficient in providing effective and useful financial services, a financial ecosystem must ultimately allow customers to make their own decisions, organise their own affairs, take informed risks and be accountable for the consequences of their decisions.
Regulatory frameworks and oversight attempt to instil and maintain trust and integrity in the financial system. This includes the provision of information and advice so that customers can make decisions, understand risks and participate with confidence.
Reputation will be critical to customers and investors in the future, as financial organisations will have a reducing influence on customer perceptions, juxtaposed against broader vectors to communicate failed delivery or outcomes.
Risk outcomes
A trend away from industrialised operating processes towards better collaboration and more automated, near real-time outcomes supported by technological authentication will require more introspection and improved decision-making techniques amongst risk management professionals.
The use of sophisticated and complex algorithms is not a replacement for effective decisions, rather it is a way of identifying and leveraging the utility of all information available at the time that decisions are made. As a result, the risk function may be able to make better risk decisions at lower operating costs while creating superior business and customer experiences.
The goal of effective risk management is to recognise and transform the utility of all information in the organisation to make timely and informed risk decisions.
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