The future of risk management in Financial Services | Financial Risk | Deloitte

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The future of risk management in Financial Services

Six imperatives that should be considered

With increased regulatory expectations and emergent technologies, the future of risk management will look dramatically different than the current risk capabilities many are familiar with.

The future of the risk function

Business units will have clear ownership for the risks that they take. Conduct and culture management will be pervasive throughout the organization. The role of the risk management function will also be clear — oversight and challenge. The risk function itself will be streamlined and much slimmer with a rationalized risk infrastructure that uses location and delivery models for cost optimization and leverages the power of digital for both efficiency and effectiveness.

The digital tools will include cognitive agents scanning a wide range of signals in the internal and external environment to identify new risks, emerging threats, and potential bad actors. These digital tools will not only strengthen the risk function but provide additional insight to the business and to strategy and strategic execution. Big data analytics will be used to provide deeper insight into the interactions of risks and causal factors. Robotics and process optimization will restructure processes and automate many of the processes that remain to dramatically reduce both operational risk and also improve quality of risk management — including reviewing conduct and culture risks.

Automated risk triage will occur continuously to elevate risks to risk analysts for further assessment and treatment where warranted of the more significant risk issues. To the extent that reports are needed to summarize the risk activity, natural language generation techniques will prepare draft reports, with only review and selected input performed by the risk analyst. This paper from Deloitte Global describes the challenges facing financial institutions and the approaches they can use to move to this new future of risk management.

The future of risk in Financial Services

The survey results highlight very interesting and relevant insights related to different topics:

This Deloitte Global report urges financial institutions to rethink and transform the way they manage risk to leverage emergent technologies, and increase risk management productivity and effectiveness.

The report describes six imperatives that institutions must consider to become more dynamic and capable of responding to new developments.

  1. Increase focus on strategic risks like geopolitical, FinTech and other non-traditional competitors; and improve identification and management of these risks.
  2. Rethink the three lines of defense by enhancing business unit responsibility for managing risks and clarifying second line of defense activities.
  3. Leverage emergent technologies to increase efficiency and effectiveness of risk management. 
  4. Establish a formal conduct and culture program to build customer trust and gain a clear strategic advantage.
  5. Enhance risk management capabilities to build a more nimble infrastructure able to address newer nonfinancial risks as well as the challenges of regulatory fragmentation.
  6. Manage capital and liquidity strategically by enhancing governance structures and decision-making processes.

Today, risk management is at crossroads. Financial institutions need to decide if they will continue with business as usual or fundamentally rethink their approach to risk management.

More information?

Want to know more on risk management? Please contact Koen Dessens or Jeroen Jansen via their contact details below.

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