Risk management solutions in an increasingly digital financial sector
In the world of finance, digitization is an ever-growing force. What began as simple technology to enhance customer service in the form of chatbots on banking sites has grown into a digital transformation of everything from how money is deposited and spent to how it is counted and kept safe. As the digital transformation of the finance sector is completed, risk management must be assessed — both in managing the risks that come with digitization and in digitizing the process of risk management itself.
Finance in Flux
One of the biggest challenges faced by an increasingly digital financial world is that it is always changing. In addition to needing to meet the demands of customers who expect immediate service, financial institutions are being challenged by fintech startups who follow the e-commerce model. Varo, Chime, and SoFi Money are examples of digital-only banks that are attracting customers through offers of high interest rates on savings accounts, no international fees, free checking, and instantaneous mobile banking. Traditional financial institutions have the option of either digitizing or isolating themselves from a large customer base expecting the mobility, instant gratification, and personalization they find elsewhere.
Increased digitization of finance means more regulations, especially in the global fight against money laundering and terror funding. The ability to identify and prevent illegal transactions requires the constant development of new technology to keep financial institutions a step ahead of criminals. As a result of both increased threats and new technology, new regulations for institutions are increasing at an astonishing rate. According to Reuters, from 2004 to the start of 2018, the number of regulatory updates increased from approximately 10 per day to almost 208 per day.
Risks faced by financial institutions are evolving every day, with new threats emerging in the form of fintech, privacy risks and cybersecurity concerns, rapid adoption of new tech, markets that change quickly due to machine-based trading, and beyond. Due to this, data needs to be collected and used in predictive analysis for risk management that can keep financial institutions safe, not only in the present but during future disruptions as well.
Digitizing Risk Management
With the territory of risk management in the finance sector expanding so greatly, the incorporation of advanced analytics and machine learning is a must. Financial institutions can no longer plan on modifying their risk management according to a single disruptor and waiting for the next big change. When change is nearly constant, risk management solutions need to be able to adapt quickly — often, this means successfully leveraging data.
Digitization creates an exponential increase in data from multiple sources, and the best way to cut cost while reducing operational risk is through the efficient management of such data. AutoRek is a company that financial institutions have turned to for complex data management. The ability to gather data from various points, bring it together for analysis, and use the information to meet regulatory demands and make important business decisions is critical to any risk management plan.
The front-to-back integration of new risk management processes requires proper integration into all existing and new products. Often, financial institutions are discovering that distributed ledgers or cloud services, along with the adoption of AI for surveillance, processing, and decision-making, are the best way to quickly and successfully innovate risk management solutions. SaaS providers such as Calypso are useful in this regard, providing adaptable and scalable mitigation across several financial verticals.
Proper risk management is necessary to keep an institution resilient and to protect its reputation as a trustworthy entity. Running simulations of what will be done in the case of security breaches, technological difficulties, third-party failures, or operational difficulties is important in guaranteeing that the institution is up-and-running no matter what emergency it encounters.
When considering data management solutions, it’s important to find a company, such as GoldenSource, that is able to provide a flexible structure that can interface with the appropriate applications and is tailored to an individual firm’s needs. Ideally, a data management provider should enhance security, provide analytics, and seamlessly function as part of a firm’s existing IT infrastructure.
Risk management in a digitized financial world is a daily challenge. Making the transformation to a digitized risk management system is the best way to address customer needs, regulatory changes, and emerging threats. Although switching to a digitized mitigation system may require initial expenses and a learning curve, the efforts will be well worth it. In the long run it may prove to be the case that only the institutions that truly adapt to a digital culture will survive.