Risk Management in Financial Services
How is technology shaping the future of risk management in financial services?
Risk management in financial service has transformed substantially over the past 10 years.
In 2007, no one would have thought that risk functions could have changed as much as they have in the past few years.
And although we do not possess a crystal ball that will tell us what BFSI risk functions will look like in 2025 or what financial crises may disrupt risk management between now and then – we believe that technology is fundamentally going to reshape risk management in the coming years.
Here are some areas where technologies are transforming risk management:
- Advanced risk analytics:The quantum of data involved in business activities is massive, and enterprises today are heavily investing on analytics consultants and data scientists to predict hidden risks and arrive at real-time intelligence. Some key areas where advanced risks analytics make a significant difference are loss forecasting, predictive modeling, fraud analytics, and diagnostic analytics.
For instance, the Actian Analytics Blueprint for retail banks refines 160 fraud detection algorithms to provide pattern detection in seconds. It models behavioral patterns (both human and machine) to predict and mitigate risks.
- Cognitive intelligence: Advancements in AI and analytics are permitting overwhelming amounts of data to be both processed and retrieved in nanoseconds. Behavioral patterns can be traced and mitigation plans can be put in place to prevent risks quickly and in real time.
For instance, machine learning with advanced algorithms can be used in banking to lower cost bases and enhance effectiveness and efficiency of processes, whilst providing a better products and services to their customers.
- Visibility across the entire value chain: Cutting-edge technology empowers category leaders to have visibility across the value chain, particularly if the category involves sourcing on a global scale. It helps capture information and data that may leave a direct impact on the end product.
For instance, a global IT major introduced a risk analysis tool for global outsourcing, which collects multidimensional data from over 50 countries. Additionally, it tracks any information based on combinations involving high-risk clients and offerings. Based on this, any issue that may potentially impact the process is flagged right away.
- Blockchain: Although in its nascent stage, blockchain is already a disruptive technology. Blockchain provides users with synchronized and a near real-time settlement of recorded transactions. As a result, there’s no need for middlemen as any two parties (or more) can transact between themselves using blockchain.
For instance, a leading Korean bank is rolling out a blockchain-based system to reduce human error in Interest Rate Swaps. Prior to this, there was no standardized rule to manage financial records – this is why market participants relied on its own records, which led to errors. The new system aims at streamlining the IRS trade process by reducing the need for verification and cross-checking.
HCL, through its enterprise risk management services, focuses on transforming the client’s risk management functions. The team aims to consolidate a series of isolated activities into a process of strategic scope and importance, encompassing all aspects of an enterprise, including financing, investing, and operating decisions.