Banks don't have the option of being overwhelmed by risk challenges. Here are the main points financial institutions will need to pay attention to in 2018.
In a fast and connected world, banks and financial institutions are exposed to ever-increasing risks, both internal and external. This year, risk management functions will have to identify, assess and monitor risks while keeping up with pace of change. As business models becomes digitized, institutions will need to execute similar transformations for risk, regulatory and compliance processes, especially those that are directly linked to the digitization Possible use cases for this include trade-based money laundering, centralization of risk data, consolidating external risk and regulatory intelligence as well as broader digitization of risk management operations. And at the heart of all this lies the big challenge around data leakage and security, which will get amplified in 2018.
Here are the top trends that risk professionals must look out for in 2018:
Countering trade-based money laundering and checking terror financing
With most of the world’s illicit money flow coming from trade-related activities, banks and financial institutions in 2018 will be increasingly required to identify money laundering happening through this route. Curbing the use of the trade finance avenue to aid terror financing will be the biggest priority for the banks in the coming year. Identifying illicit money flow real-time will require tracking of inappropriate invoicing, fraudulent counter-party involvement and sanctioned shipping routes. Banks will adopt a digitized approach for trade finance compliance and due diligence, ensuring only high quality transactions flow through seamlessly while dubious ones are reported. The cost of regulators being unsatisfied with the response system to deal with trade finance based money laundering will be too high.
Centralizing internal risk intelligence
Data parked with banks is humongous and is further expected to grow at an annual rate of 50 percent, according to a leading public sector bank in India. Within this data lies a wealth of information that can be leveraged across business function as risk intelligence. Existing legacy risk platforms are not equipped to link this data to bring forth relevant intelligence for better business decisions. Current models of risk management are disintegrated and manually driven, which leads to loss of important insights and patterns to help risk-based decision-making. In the coming year, banks will look for a complete and connected risk solution to manage compliance mandates, mitigate enterprise risk and strengthen the third line of defense (internal audit). Banks embarking on this journey will gain an advantage over their competitors in terms of innovation, time-to-market, user delight and cost of service, irrespective of the market landscape and regulatory challenges.
Leveraging external risk and regulatory intelligence
The rate of regulatory activity continues to grow; a recent Thomson Reuters study reflected that 70 percent of firms anticipate regulators to roll out even more changes and updates in the coming year. Since 2004, regulatory updates have increased from around 10 a day to nearly 208 a day. While banks are grappling with regulatory change management, there is also an increasing pressure to keep a tab on external risk intelligence related to customers, partners, suppliers and even employees. In 2018, banks will look to leverage trusted and accurate sources of risk and regulatory intelligence to meet regulatory obligations, make informed decisions, and help prevent business from inadvertently being impacted by reputational damage.
2017 saw a spate of bank data breaches. India has the highest number of users subjected to ransomware attacks at 9.6 percent of all computer users, according to Forbes, which cited a report by Comparitech. A miniscule technological oversight can lead to theft of data, resulting in loss stake holder trust in the organization. 2018 will see data security emerge as an even bigger challenge. Additionally, monetary penalties and reputational loss which come with data breaches will heavily impact the core business functions, damaging the brand.
Crystal ball-gazing for risk management
In 2018, risk management strategies, technology, and operations will need to evolve and embrace new competencies: mastery over data, process standardization and consistency, and systems development modularity as a paradigm of operating; with applications that deliver “in-time” flow of information, facilitate dynamic collaboration, and support governable workflows, data, and model production processes.
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