DTCC Looks For The Next Market Risk, Or Risks
#DTCC knows the markets have #risks, but it doesn’t expect history to repeat itself, so it surveys the horizon for potential problems.
Financial Technology
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IBM’s Watson Takes On Risk And Regulation In Finance
IBM is offering #risk management and RegTech solutions with sophisticated #technology to reduce time and costs.
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Meeting banking risk management coordination challenges
Accenture’s Global Risk Management Study highlights ongoing integration and #coordination #challenges that face #banking #risk #management teams. In our study’s first year (2009), only 15 percent of respondents reported having an integrated IT risk infrastructure. Over the years, that gap has closed only incrementally. This year, 67 percent of respondents report roadblocks resulting from a lack of integration across the enterprise.
To centralize or not?
New this year, though, is how our banking respondents view centralization. We first examined centralization trends in risk management coordination by risk type (market, credit and liquidity risks), and the results are somewhat contradictory. The 16 percent who are currently fully centralized expect to see an increase in coordination to 24 percent. Even the 20 percent of respondents who are fully decentralized, operating at mostly regional levels, expect more centralization in two years’ time.
However, the majority of respondents that currently operate both a group and regional level believe the trend is toward decentralization. Forty-three percent of this cohort believe that coordination by risk type will actually decrease by nearly 10 percentage points overall in the coming two years.
Interestingly, we see the same pattern of results in our examination of the coordination of risk management across lines of business. Those fully centralized across lines of business expect an increase of 10 percentage points in two years’ time and similarly those fully decentralized expect almost a halving of their full decentralization rate. Similarly, the majority of respondents fall in the hybrid model of centralization and believe that only 25 percent of risk functions will be coordinated across the business in two years’ time.
Lastly, we looked at coordination of risk management activities across the overall business and found a lack of strong sentiment regarding coordination one way/another. While 40 percent of respondents felt there was limited coordination between local- and group-level risk management functions, nearly 30 percent felt that this was neither true or untrue.
Where do these seeming contradictions lead us? We see the role of risk manager becoming more integrated with the business and thus, demand has been put on the risk function to respond to both global and local needs. One intensive local need to highlight from our study findings is regulations; 78 percent of study respondents cite they are facing increasing demands in this area.
Being an integrator of risk is a challenging role, not only in terms of serving global and local needs but also in terms of cost. Over 50 percent of respondents reported duplication of risk management efforts across lines of business.
An ongoing gap
While #banks’ risk functions have had steady success since 2009 in coordinating with the business, a lack of integration with other business functions has always been a gap cited for improvement. We see an upward trend in improvement. In 2015, 7 percent of respondents said the risk and finance function worked closely together and provided joint input into enterprise risk strategy. That number more than doubled, to 16 percent, in this year’s study. And in two years, 30 percent of respondents expect that level of coordination between risk and finance.
The other good news is the steady growth in influence among our survey respondents. Risk leaders have evolved from leading a very siloed function in 2009 to gaining a direct line to the CEO by 2013, and even a seat “at the table” in 2015. That positive trend is tempered by the challenge to integrate finance and risk. Only 38 percent of respondents say the finance and risk functions are working together—but they are not working together to help guide enterprise strategy.
So, will risk leaders in banks take their seat at the leadership table to drive further integration? Time will tell, but we believe that working with common data sets and flows can be a powerful lever in addressing coordination challenges cost-effectively.
We expect risk leaders to raise their game and be talented in many disciplines in order to rise to the integration challenge. In my next post, we’ll explore talent needs.
How can risk managers balance both coordination and cost management? We believe sharing data is the key. Integration can be driven with increasing efficiency when data is at the core of the bank’s operating model. To effectively and efficiently share and use data means being a smart technologist, employing new technologies and a coordinated approach across the business.
The post Meeting banking risk management coordination challenges appeared first on Accenture Banking Blog.
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How ready are banks’ risk teams to meet new IT challenges?
Banking is an industry heavily impacted by changing technologies, including #blockchain, the Internet of Things (IoT), and artificial intelligence (AI). Sixty-three percent of the banking respondents to the Accenture Technology Vision 2018 survey say their organizations will make investments in AI over the next year, and 85 percent agree deeper #technology integration into our day-to-day lives is shifting relationships between consumers and enterprises to forms of “partnerships.”
The pace of change has been rapid—perhaps faster than we might have anticipated. Back in 2009, the biggest challenge according to our Accenture Global #Risk Management Study was fragmented, inefficient technology not well suited to risk management needs. Steadily, over the years, technology needs have evolved, focusing more on analytics, big data and intelligent automation. But the pace of change seems to have increased exponentially.
The reasons for change are many and with the digitization of the industry, the opportunity for #banks to innovate is everywhere. Where can risk leaders embrace the challenge?
Intelligent risk machines
While there is variation, we found that banks are experimenting with—and adopting—newer technologies at a significant pace.
Our 2017 Global Risk Management Study finds banks making positive progress already. Roughly a third of respondents are starting to use artificial intelligence (AI), robotic process automation (RPA) and machine learning (ML—35 percent, 38 percent and 33 percent, respectively). Risk is in the leading group, as at least one in four banks has begun using these technologies for their risk function (31 percent for AI, 25 percent for RPA and 26 percent for ML). Risk professionals are ambitious; interestingly, these same respondents acknowledge they aren’t using these “New Intelligent Technologies” (New IT) to full potential—signaling that their journey to higher levels of efficiency and cognitive insight is just beginning.
What is driving this? There is not one simple overarching reason. The most basic driver is a similar refrain we hear across all organizations—New IT can help relieve cost pressure. Fifty-five percent of our 2017 study respondents believe that applied intelligent technologies can deliver cost efficiency. Looking at specific technologies, we found that 35 percent of respondents believe that capabilities in big data and analytics can help their risk function address cost pressures to a great extent, while 47 percent believe these capabilities can do so to some extent.
However, the demands on banking risk functions are multifaceted, and a single reason for New IT adoption is, frankly insufficient. Risk functions find themselves processing and analyzing increasingly larger, disparate amounts of data at an ever-increasing pace, to understand an always-growing number of risks and correlations. New IT can catalyze the evolution and sophistication of risk models used by banks, which in turn have the potential to increase both the quality and capabilities of the risk organization.
Cloud
Cloud is one of the leading technologies we examined in our 2017 Global Risk Management Study, despite it being around for well over a decade. Unsurprisingly, among our banking respondents, 82 percent are using cloud in some form.
Digging deeper, however, this high number is a bit deceiving. Only 18 percent of respondents claim cloud proficiency, and many banks have not yet migrated core systems to the cloud. Over a quarter (26 percent) of respondents are only just beginning to use it, and 38 percent admit they aren’t using it to its full potential.
Now, nearly all the newer technologies we will explore in this blog series can or do reside in the cloud. This makes cloud proficiency essential for banks hoping to rapidly boost their risk management technology infrastructure. Leaders may encounter resistance when pushing for cloud—implementing it can take effort, and upfront expenses may seem costly (even though long-term cost savings can be significant), and changes to the IT operating model may be necessary, too.
Among our study respondents, we see good news. Since a strong majority have at least dabbled in cloud, it’s clear that banks see the potential. In addition, nearly 70 percent of study respondents believe that cloud, collaboration and workflow tools, artificial intelligence and machine learning can help their risk functions alleviate cost pressures to some extent. For banks, now may be the time to rethink the where and how of their cloud strategy and plan, from the perspective of both achieving cost efficiency and driving performance insight.
The promise of innovative technologies holds significant allure. And since banks are at different stages of adoption and maturity, and these technologies are not “one size fits all” solutions, can these technologies really deliver on their promise of significant cost and efficiency gains for each bank?
The rise of digital is a challenge that extends beyond New IT. What do banks need to have in place to be able to reap the benefits of these technologies and the disruptive opportunities being created by a digitized industry?
See my next post for a discussion of coordination #challenges.
The post How ready are banks’ risk teams to meet new IT challenges? appeared first on Accenture Banking Blog.
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Banking risk management is changing—but some challenges remain the same
As the cliché goes, if you’ve grown tired of the current #banking and #risk climate, give it a few minutes. It’s bound to change.
By the 2020s, Accenture predicts current banking business models to be swept away by a tide of ever-evolving #technology and other rapidly occurring changes. The risk #management function is sure to be pressed to evolve in parallel and it is, according to our 2017 Global Risk Management Study.
In this blog series on banking risk management, I will offer Accenture’s perspective of the changes that have already happened, and those yet to come. I will start with an overview of nearly a decade of risk #challenges facing #banks, and then take a deeper look at the fresh challenges facing banking risk leaders today.
We’ve been studying risk management across financial services—as well as in banking—since our first study debuted in 2009. Then, banking risk managers were reacting to the global crisis, grappled with siloed organizations, with technology not fit for purpose and a shortage in risk resources.
Since then, banking risk leaders have made significant, admirable gains. Moving past the global economic crisis, by 2013 risk leaders began having a direct line to the CEO, even taking a “seat at the table” by 2015.
Meanwhile, pressure mounts with rapidly increasing data volumes and requirements, and organizational analytic capabilities require constant upgrading. Likewise, digital data management and data analysis skills are more in demand than ever, adding to the ongoing talent squeeze.
Our 2017 Global Risk Management Study findings illustrate the rapid pace of change across banking and the risk function, both driven by digital change, digital capabilities and digital competitors. Alongside this change, challenges similar to those from 2009 #remain (see Figure 1). Banks face increasing business pressure to integrate risk and finance functions. They still struggle with talent shortages. From a technology standpoint, change is ongoing, but banks are stretching to use new technology (such as automation and cognitive computing) to full potential.
Additionally, risk managers continue to face conduct risk, reputational risk and strategic risk challenges. Other new risks are still emerging, such as model risk, cyber risk and contagion risk. Complicating matters, the 2017 study finds banking risk leaders facing the #same expectations as their bank peers in terms of driving efficiency and wisely selecting the right people, technology and partnerships to get work done.
In the midst of—and to address—these challenges, banks are in varying stages of experimentation and adoption with cloud, analytics, automation and artificial intelligence. These technologies offer promise, both in terms of innovative, sleek solutions and substantial cost and efficiency gains. Can these technologies deliver beyond their promise?
Our study finds the time for modest change or incremental fixes has passed. True, we might have predicted the steady growth of technologies such as cloud, artificial intelligence and analytics, but the competitive shifts are less expected, and new non-financial risks are a bit of a surprise. But the biggest surprise is the pace of change: more rapid than we might have expected.
What can help banking risk leaders keep pace with constant and rapid change, and fend off new traditional and non-bank competitors? It’s time to innovate. Banking risk leaders may want to carve out a core, proactive strategy that can build risk capabilities overall—now and in an ever-changing future.
Figure 1: Evolution of Risk Management. For more details, view our interactive timeline.
Click to view larger Please join me in my blogs as I share my thoughts on how risk teams can become key organizational leaders by adopting smart technologies, playing the role of integrators of risk within the wider business, and layering existing risk talent to be multi-disciplinarian players and drivers of business value.
The post Banking risk management is changing—but some challenges remain the same appeared first on Accenture Banking Blog.
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Calculating Elusive Reputational Risk — A Task For A Dartboard?
Is #reputational #risk all that important or is simply a subset of other risks, such as poor performance or fines by regulators?
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The Allianz Risk Barometer Ranks Top Risks For Global Corporations
#Risk management and insurance have to shift to meet new threats and new demands in a digitally connected world.
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What Financial Jobs Are At Risk of Automation?
#Financial advisors should be able to escape the rise of #automation and artificial intelligence with #jobs intact. That’s according to the data on the probability of computerization released by Carl Frey and Michael Osborne (reorganized into this helpful graphic from Bloomberg); which states that personal financial advisors have a 58% chance of computerization in the […]
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P2P Lending Won’t Displace Banks; Dealing with Credit Risk Management
Peer-to-peer #lending, which aims at shaking up the banking market and attacking one of the core profit-generating activities of #banks, is not likely to #displace banks from their core roles of lending to retail consumers, according to a report by Deloitte.
Peer-to-peer (P2P) lending, also referred to as marketplace lending, leverages digital platforms and modern #technology to cut out the middle man and provide better rates of interest to lenders and borrowers.
Despite the promising outlook, the P2P lending industry has recently come under fire as Renaud Laplanche, CEO of Lending Club, one of the leading platforms in the US, was forced to resigned after the company revealed that it had provided mis-assessed loans to Jefferies and Co., which was distributing the loans to institutional investors, reports the Wall Street Daily.
The news was followed shortly by a report released by the US Treasury that warned about peer-to-peer lending businesses, recommending it to be more tightly regulated.
The skepticism over P2P lending has also been felt in China where loan sharks have been widely criticized for practicing aggressive debt recovery tactics, demanding for instance nude photos as collateral from female borrowers for blackmail if they fall behind on their repayments, reports the Financial Times. Other disturbing debt recovery tactics in China include property destruction and bodily injury.
Bankruptcy lawyer Han Chuanhua of the Zhongzi Law Offices in Beijing, told the media outlet:
“If they borrow from banks there is no threat to personal safety. But if they borrowed from private lenders, especially high-interest lenders, it can happen. […] If they can’t repay sometimes the high-interest lender sends people to their homes. Mostly they threaten, but sometimes they take action. These types of people don’t go through legal channels.”
While P2P lending has enabled the masses to gain access to #credit and investment opportunities in China, the sector has nevertheless a Wild West aspect with lenders reportedly peeking in bathrooms in order to assess credit risks and borrowers settling payment obligations with bottles of spirits.
Despite the struggles, the industry continues its path to maturation with notable initiatives emerging to structure and legitimize the practice. For instance, the Marketplace Lending Association, launched in April with the purpose of promoting responsible business practices and sound policy to benefit borrowers and investors.
A similar organism exists in Switzerland called the Swiss Crowdfunding Association and counts among its members the likes of Advanon, Cashare, Lend, Swisspeers, WeCan.Fund, Crowdhouse and CreditGate24.
Launched in March 2015, CreditGate24 connects borrowers directly with private and institutional investors. During its first year of operation, CreditGate24 enabled more than 270 credit projects without any failure.
The company performs strict credit checks based on traditional methods with use of Big Data analytics.
Yet, P2P lending remains a risky bet compared to other savings and investment options, according to Deloitte. However, it highly depends on the market. Switzerland seems to be a very attractive destination. The country is known to be very reliable and strict in credit-#Risk #Management and investors can get attractive yields with the likes of CreditGate24 and others.
Featured image: Hand shake by Bplanet, via Shutterstock.com.
The post P2P Lending Won&8217;t Displace Banks; Dealing with Credit Risk Management appeared first on Fintech Schweiz Digital Finance News – FintechNewsCH.
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Blockchain Could Reshape Finance Admin, UK Risk Assessors Say
A #risk assessment agency within the UK government recently published comments on #blockchain #technology.
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