Implementing risk transformation in financial services
Data, analytics, and technology
Risk transformation can enable a financial institution to elevate risk management from a functional capability to an enterprise responsibility that permeates the entire organization. When that happens, every business, function, and individual becomes responsible for, accountable for, and capable of recognizing and addressing risks within their purview. Data, analytics, and technology are foundational elements in risk transformation.
Data, analytics, and technology as a cornerstone
As financial institutions cope with new regulatory and competitive challenges, some are finding their past approaches to be suboptimal, particularly in the area of data, analytics, and technology.
Key among those regulatory and competitive challenges are the following:
- Many regulations directly affect data, analytics, and technology: Regulators are focused on risk data quality, consistency with financial data, methods of aggregation and reporting, and related processes.
- Institutions need to optimize risk, not simply lower risk: More detailed and immediate data can be used to enhance allocation of capital and manage liquidity, increase capital efficiency and return on risk weighted assets (RWA), and optimize products and relationships.
- Costs are rising and profits are threatened: Against this regulatory landscape, costs, competition, and pressures on profits are skyrocketing. Institutions that attempt to employ tactical responses to these regulatory changes could find themselves wasting resources.
- Information technology (IT) has become a valuable enabler: IT is enabling risk data aggregation and repositories, structured and unstructured data aggregation, real-time risk reporting, and visualization tools.
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