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FOR FINANCIAL SERVICE PROVIDERS, MANAGING VENDOR AND THIRD-PARTY RISKS IS CRITICAL

By Rich Cooper, Director of Global Accounts, Fusion Risk Management

 

Regulators Will Hold Firms Responsible; Good News is Technology Is Here to Help

 

Everyone knows there are inherent risks in markets. Investors know and accept the risk that their investments may lose value. For the financial services companies that facilitate and stand behind the trades of ordinary investors, there are risks largely unseen by the public that must be reckoned with on a constant basis.

 

Financial Service (FS) providers (banks, brokers, asset managers, etc.) must work with a variety of vendors and third parties to be competitive in attracting investors as well as keeping their clients’ business. They range from back-office and IT outsourcing vendors to third-party trade-clearing, settlement and money-transfer providers. The economic services provided by the finance industry encompass a broad range of businesses that manage money, including credit unionsbankscredit-card companies, insurance companies, accountancy companies, consumer-finance companies, stock brokeragesinvestment funds, individual managers and some government-sponsored enterprises. Many of these relationships are intricate and multi-layered with risks imbedded in every layer. A vendor or third party providing direct services to you as an FS provider may also have several relationships with others that could put your direct relationship at risk.

 

Just this month (December 2019), the Bank of England (the Bank), Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) published proposed new expectations to strengthen operational resilience in the financial services sector. This is major next step in evaluating “operational resilience” in the Financial Sector (in the UK defined as UK banks, building societies and investment firms (banks); and the Society of Lloyd’s and its managing agents (insurers) collectively called “Firms” and  also Financial Market Infrastructure collectively called “FMI’s”). It likely will become policy in the UK in 2021, The European Union and Singapore by 2022 and possibly the U.S. soon as well.

 

The Federal Financial Institutions Examination Council (FFIEC) in the US came out with new guidance as well this month. The guidance notes: “Business Continuity Management (BCM) is the process for management to oversee and implement resilience, continuity, and response capabilities to safeguard employees, customers, and products and services. Disruptions such as cyber events, natural disasters, or man-made events can interrupt an entity’s operations and can have a broader impact on the financial sector. Resilience incorporates proactive measures to mitigate disruptive events and evaluate an entity’s recovery capabilities. An entity’s BCM program should align with its strategic goals and objectives. Management should consider an entity’s role within and impact on the overall financial services sector when it develops a BCM program.”

 

Two areas that present the most significant risk management and compliance challenges to FS providers are:

  1. Financial Market Infrastructures (FMI). These are critically important institutions responsible for providing clearing, settlement and recording of monetary and other financial transactions. A payment system is a set of instruments, procedures and rules for the transfer of funds between or among participants. An example is the SWIFT network for global banking and payments. In the US, the Federal Reserve Board supervises most market infrastructures.

 

  1. Outsourced Technology Services. FS providers that rely on third parties to provide operational services need those vendors to have sufficient resources and recovery capabilities in the event of a disruption. The FFIEC, which has a handbookfor business continuity management (BCM) planning, warns that: “Financial institutions should recognize that using such providers does not relieve the financial institution of its responsibility to ensure that outsourced activities are conducted in a safe and sound manner.”

 

The primary concern of regulators is the “systemic risk” that individual vendors and third parties present to the overall health of the financial/economic eco-system. Recall the snowball effects that the failures of several large broker-dealers and investment banks had in precipitating the great financial crisis of 2008. Regulators are also concerned that the FMIs, if not properly managed, can result in significant violations of consumer laws and regulations and expose an institution to supervisory enforcement action, as well as financial, legal and reputational risks.

 

This is the most important point to remember – as an FS provider, you OWN THE RISKS.

 

So, what can you do to mitigate your risks?  As best practice, you should:

  • Mark all of your vendor and third-party relationships from end-to-end. As an example, in payments and settlements, you vitally need to understand who your third parties are, where they are and what risks they may present. You need to plan on how you can mitigate those risks to the greatest extent possible.
  • Make sure everyone in your organization who is responsible for these risks is informed – including C-suites and boards. The FFIEC handbook emphasizes that “the responsibility for properly overseeing outsourced relationships lies with the financial institution’s board of directors and senior management.”
  • FS providers should do a deep dive into their current systems, their limitations and their liabilities. Many firms still have legacy systems with risks assessments built into spreadsheets or printed documents. State-of-the-art BCM systems allow for information inputs from across the organization with advanced technologies employed in risk assessments.
  • Some firms keep their databases in silos (i.e.: equity trading department; mutual fund department) where one silo can be unaware of the risks of the other, putting the entire firm in jeopardy. A holistic system that covers the enterprise and allows prompt reporting to the board level is not a luxury. It is a must for today’s FS providers.
  • Your system must be stress-tested constantly and vigilantly. Game-playing scenarios are helpful in identifying “what if’s?” as well as planning work-arounds for potential disruptions.
  • Identifying “acceptable risks” is important as well. A one-hour outage may not be desirable, but it may be acceptable and not have any regulatory ramifications for your firm. But a 72-hour outage would be vastly different, as access to cash reserves and insurance may be limited or non-existent and your legal liabilities could be piling up.

 

If you think this is complex, you are right. Operational disruptions to the products and services that firms and FMIs provide have the potential to cause harm to consumers and market participants, threaten the viability of firms and FMIs and cause instability in the financial system.  There are new regulations on the way to mitigate this risk to the economy and managing 3rd (and fourth) parties is a key area of discussion.

 

The infrastructure of financial institutions and FS providers is much like a tapestry whose resilience depends on the strength of the weave. But don’t be deterred by the complexity. The good news: there are technology-empowered platforms that can help you manage your vendor and third-party risks.

 

An effective outsourced business continuity management program will provide the framework to successfully manage your vendor and third-party risks now. It will employ up-to-date technology; will break down silos, and will identify, measure, monitor and mitigate the risks that otherwise may keep you up at night.

 

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CUSTOMER CARE TODAY WILL BUILD RESILIENCE FOR FUTURE CRISES

Customer

Cathal McGloin, CEO of ServisBOT writes, “The COVID-19 pandemic has created major spikes in calls to financial sector helplines dealing with customers who are concerned about temporary business closures, or seeking information on mortgage holidays and insurance cover.

 

Easing the pressure

With call volumes surging at many contact centres, moving customers from a voice to a text-based channel and encouraging some of them to self-serve via your website or mobile app helps to reduce pressure on contact centre agents. A call-deflection solution doesn’t have to be complex, costly or time-intensive, but it can be extremely effective in managing additional call volumes more cost-effectively, while still providing your customers the information that they need to allay their concerns.

If customers are able to interact with a chatbot initially and this resolves their immediate queries, this can significantly reduce call volumes and the business can still enable the bot to handover to a customer service agent for customers that require further assistance.

 

Setting up a Chatbot in 48 hours

Whether your interactive voice response (IVR) is based on legacy technology or is a modern cloud-based solution, it’s possible to deflect customers from an inbound voice channel to a messaging channel. We know, because we have done this for a client who considered this impossible with their legacy on-premise IVR system. Spinning up a solution took just 2 days and allowed them to successfully deflect calls, automate the response, and still offer customers a path to live chat.

 

Employing a Chatbot as a Call Deflection Solution

Financial services businesses can launch a very simple bot. The bot can be as simple as just pointing a customer to the COVID-19 FAQ page or it can be an extension of an existing customer service bot that offers multiple capabilities. On day one it may just be used to quickly assess queries and handover to a live agent. However, by gathering the training phrases from customer chats, the bot can be made progressively smarter and add capabilities, so that it can be trained over the course of  a week to start automating your customer service

After a week the bot can start automating to become more self-sufficient and take more of the burden from your customer service agents, allowing them to handle more complex customer issues.

Using a chatbot opens up a whole new path to automation.  Once customers start to engage with your intelligent virtual agent, the bot can handle simple requests, direct them to the relevant information on your website, or help them transact in a self-service manner. All of this can happen without the need for them to engage with an agent unless they specifically request this, or the bot escalates the request to an agent. It can even be integrated with your live chat systems so that the bot works in parallel with live agents when needed.

 

Future proofing

During crisis periods, when interactions with concerned customers need to be handled well, call deflection using a chatbot or virtual agent takes the pressure off contact centre agents. It also introduces an automation path that can help customers around the clock.

Once your chatbot has been trained to respond to common customer queries round the clock and reduce the pressure on your contact centre staff, your employees can focus on providing the best care for your customers who urgently need to speak to them. Introducing virtual assistants sends a clear message to your customers that they are your priority and increases the resilience of your business against future emergencies.

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NEW IVALUA STUDY SHOWS TECHNOLOGY CHALLENGES ARE HINDERING PROCUREMENT TEAMS FROM ACHIEVING BUSINESS OBJECTIVES

BUSINESS

Lack of system integrations and actionable insights are stopping organisations from accurately measuring performance

 

Ivalua, a leading provider of global spend management cloud solutions, has announced the latest findings of a worldwide study of supply chain, procurement and finance business leaders on Effective Procurement Performance Measurement. The study revealed the challenges procurement teams face when it comes to achieving business objectives and the wide and growing gap in performance between advanced and less mature teams.

 

The research, conducted by Forrester Consulting and commissioned by Ivalua, found that procurement teams are increasingly being measured by non-cost KPIs such as revenue opportunities being created, payment performance (e.g. on time payments) and spend visibility. However, a lack of data integration between systems (44%), lack of relevant insights (40%) and insights not being made available at the right point in the process (39%) are preventing organisations from accurately measuring progress against business objectives. This is because organisations continue to face challenges when it comes to harnessing technology in procurement, with existing systems not being fit for purpose (36%), poor data quality reducing trust in information (36%) and staff having inaccurate expectations of what technology can do (34%).

 

The research went on to reveal that more digitally “advanced” procurement departments are far exceeding “beginner” procurement departments that are less digitally mature in the range of KPIs they track, how frequently they measure success and the levels of planned technology investments. Key findings include:

  • 97% of advanced procurement departments say procurement strategy is well aligned with overall business strategy versus only 14% of beginners.
  • 51% of advanced procurement departments measure performance weekly or biweekly, versus only 26% of beginners.
  • Only 16% of beginners proactively monitor suppliers’ contracts for expiration and risk, versus 94% of advanced – this is critical for helping organisations manage today’s global supply chain challenges, such as the Coranavirus outbreak.

 

“In order for procurement teams to achieve their growing list of objectives and become strategic enablers for their organisations it’s clear they need to overcome a number of technology challenges” said David Khuat-Duy, Corporate CEO of Ivalua. “As we can see from more digitally advanced procurement departments, technology adoption has helped them to align with business objectives, actively measure performance and add value in areas such as risk management. Their investments and approach to leveraging technology is building a competitive advantage.”

 

According to the study, the amount organisations are spending on procurement technology has been rising and expected to accelerate. In the past 12 months, 46% of organisations increased spending by 5-10%. In the next 12 months, 39% plan to increase spending by 5-10%, while a further 43% plan to increasing spending by 10% or more. Procurement leaders are also looking to fully digitise procurement processes (40%), becoming the preferred customers of strategic suppliers (40%), implementing new software for sourcing/procurement (38%) and improving reporting and insights (38%) to help achieve objectives.

 

“It’s encouraging to see organisations investing more in technology, which will help procurement become a key strategic enabler that goes beyond cost reduction to build a competitive advantage,” added Khuat-Duy. “Increasing adoption of technology will allow procurement teams to gain complete visibility into all suppliers and spend. This will open up further opportunities for procurement to help identify revenue opportunities, track risk and improve sustainability, helping to contribute towards wider procurement and business objectives.”

 

Download the full study here.

 

*The February 2020 study was conducted by Forrester Consulting on behalf of Ivalua and is based on a survey of 409 finance, procurement and supply chains decision makers throughout North America and Europe, as well as several in depth interviews.

 

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