The sensitivity of financial products to integrity risks | Regulatory Risk | Deloitte

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The sensitivity of financial products to integrity risks

Become future proof by using our product risk assessment methodology.

Recent trends raise the need for financial institutions to have a solid understanding of their integrity risk. Unfortunately, current processes fall short in revealing the full scope of integrity risks. Therefore, it is essential that financial institutions start assessing potential risks among their products and services. Using the three steps methodology approach will help financial institutions to do so.

Key integrity risk areas

Financial institutions need to have a solid understanding of their integrity risks related to their broad product portfolio and financial services. Until now, however, the scope of risks has been limited – seeing primarily duty of care as a product field that involves many risks. Financial institutions, however, must look further than that. Many financial products and services expose the institution to a broader range of integrity risk such as money laundering, phishing, fraud and cyber-crime.

For financial institutions it is a challenge to be able to perceive these risks and to mitigate them by means of effective control. In order to do so, they must systematically analyse and monitor these risks on a continuous basis.

The sensitivity of financial products and services to integrity risks

Assessing your product risk

A product risk assessment for financial institutions that can function as a guide to analyse and monitor risks in all types of financial products could form a basis to integrity for financial organizations. Such a methodology consists of three phases:

  1. Preparation phase: In this phase, the institution defines the scope of the risk assessment. The institution compiles a list with its current and offered financial products and services, including the quantity of each product.
  2. Risk analysis phase: In this phase, the inherent risks of each financial product and service are assessed, how these are supposed to be mitigated by existing controls, and what potential residual risks still exist after controls have done their work. 
  3. Closing phase: In this phase, the results of the risk analysis are reported. Furthermore, proposed measures have to be followed up and monitored.

Three needs for a successful risk analysis

Following the three step methodology is not enough. For a successful analysis of risk, financial institutions should have:

  1. Financial Product Analysis: By analyzing financial products and services you discover their nature and characteristics but also gain understanding in their weaknesses. To perform this analysis you need solid product descriptions and sufficient data of the financial products and services offered.
  2. Specialists: Both the analysis of financial products and the product risk assessmentitself require specialists (from both first and second line of defense) regarding the financial products, the mitigating controls (testing), the execution of an effective product risk assessment, and the risk criteria.
  3. Proper Monitoring: A product risk assessment is only effective when a proper monitoring is in place, which should ensure an adequate achievement of the proposed mitigating measures.

Using intelligent data analytics techniques will help gathering a complete insight and a smarter, more effective and cost efficient execution. It also helps to recognize the integrity risks of new internal and external developments in a world of innovation and accelerated growth of new financial products and technologies. It allows financial institutions to enhance overall systematic integrity risk analysis and will enable them to become futureproof and empower business performance.

More information?

Want to know more on understanding regulatory risks for financial institutions and how to get a solid, effective and data-driven product risk assesment? Please contact Christiaan Visser or Joes van Berkel via the contact details below. 

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