Recasting Operational Risk in COVID-19 - COVID-19 blog | Deloitte Australia has been saved
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The COVID-19 pandemic is no Black Swan event, rather it is what Michelle Wucker describes as a Grey Rhino – highly obvious and highly probable, but still neglected. And as such it has meant that almost every company was unprepared and is now scrambling to manage the financial and operational capacity shocks that directly challenge their existing risk, control, and defence models.
As we navigate through this ‘respond’ phase - perhaps the most disruptive period of the crisis - we need to be prepared to be effective in our immediate environments and strengthen our resilience into the future.
The following seven themes require recasting as key risks to the financial services industry emerge as we respond to COVID-19:
1. Conduct: Effectively balancing obligations between customers, shareholders and other stakeholders will require leaders to make complex and sometimes difficult decisions for instance the complexities that are arising in areas such as managing between principles for responsible lending and assessing eligibility for assistance.
2. Technology, cyber and data privacy: With the sudden imperative to work virtually, where the industry as a whole pivoted their entire workforces in record time to access the organisations systems and information remotely.
3. Staff resilience: In this rapidly changing environment, a wave of ancillary health risks is coming to the fore. This means that organisations are obliged to ensure their staff members are appropriately supported and empowered in their resilience.
4. Staff re-allocation: With the rapid shift in priorities due to COVID-19, organisations are increasingly moving ‘non-essential’ staff into essential customer services.
5. Fraud: In previous times of hardship, such as during the Global Financial Crisis, there were marked increases in fraud and financial crime.
6. Collateral: With the introduction payment deferral options provided to customers, there are heightened concerns over loan guarantees and the collateral underpinning the assets. These risks are further exacerbated due to:
7. Implementation Risk: Significant and uncharacteristic changes to policies, such as automatic extensions of credit are happening rapidly in response to changing needs. As such, organisations need to ensure that their processes and systems can adapt and apply the changes to both customers and products in an accurate, consistent and timely manner.
While these risks will continue to evolve, organisations need to focus on the key controls they will rely on to rapidly and effectively respond to shifting business needs, risk exposures and community expectations.
Sean has over 20 years’ experience within institutional and investment banking. Prior to Deloitte, he was Head of Thought Leadership at Westpac’s Institutional Bank. As a Managing Director at Global banks, Sean held key roles included Global Head of Operational Risk, APAC Head of Product Control, COO of European Equity Trading, Head of Finance for Continental Europe and COO Australia. Sean's Advisory experience has focused on supporting Financial Institutions on Risk, Technology and Business Transformation.