News stories on regulatory failings have liberally peppered the media following the financial crisis, highlighting the need for banks, insurers and financial services organisations to change the way they manage risk. According to the latest EY Survey attention to risk culture has risen dramatically in the last 12 months with 81% going through a process of change. With financial penalties as a result of non-compliance at an all-time high, and trust in the sector at an all-time low, enlightened companies are turning to new tech to provide better risk information and metrics to help shape cultural change.
Here are 5 reasons why:
- Major decisions within the financial services sector have traditionally been made on historical data and ‘gut feel’. Metrics and data insight tools can provide senior executives and management with near real-time information that radically improves the quality and speed of decision-making.
- Finance companies process and gather large amounts of data every second. Yet this data is often reviewed in isolation and not analysed in the broader context. New technology that facilitates better, faster data analysis can help companies move beyond traditional quantitative risk management and identify underlying patterns and trends. This provides valuable insights and helps companies forecast future risk events and provide mitigating actions with more accuracy.
- The sheer size and complexity of global financial services companies can make the visibility and management of risk very challenging. A risk metrics insight tool as well as a risk platform that supports collaboration across the organisation is essential. It can help companies improve compliance and supervision by enabling senior management to better engage and communicate with their teams, as well as recognise episodes of wrongdoing or bad practice.
- The collation of behavioural data (e.g. knowledge, attitude and practice) can be used, for instance, to build a profile of normal and irregular trader behaviour. Key risk and control indicators can then use trend data to predict issues early and enable risk and compliance staff to conduct internal investigation and mitigating major conduct and regulatory breaches.
- Easy to use data input and reporting can be used to break down communication barriers and help to promote good culture as well as foster a greater sense of responsibility, accomplishment and achievement among staff. A well-motivated workforce leads to better productivity, less absenteeism and lower staff turnover, and reduces training and recruitment costs.
Lastly, those who pioneer the use of modern risk technology and risk metrics to support conduct risk management will not only achieve cultural change more quickly but may also gain competitive advantage over finance companies that are reluctant or slow to adapt. And in a hypercompetitive market, what business wouldn’t say ‘yes’ to that?