Gaurav Kapoor, COO at MetricStream
Around the world, consumers and investors are demanding better standards of corporate governance and integrity, thereby shifting the emphasis of risk management beyond traditional risk areas such as financial risk, to non-traditional risk areas such as conduct risk, reputational risk, and ethical risks. Meanwhile, emerging digital technologies such as artificial intelligence and machine learning have introduced new concerns around data security and privacy. Added to that, product lifecycles have shortened, and innovation has accelerated, calling for a greater awareness of the associated risks.
In this dynamic environment, chief risk officers (CROs) have a dual role – to help the enterprise protect its integrity and reputation, while also catalysing business performance. It’s a tricky balancing act – one that requires CROs to not only provide credible challenge to the business, but also be supportive of profit and growth. With that in mind, here are three key priorities that are becoming increasingly important to CRO success:
- Strengthening cyber resilience
The CRO seems to have emerged as a guardian of the digital universe where digital data volumes have continued to grow, and with them, the scope of cyberattacks has increased. Today, a single data breach can strike at the very heart of the business, impacting financial gains, investor confidence, regulatory credibility, and legal liability. Therefore, it’s no surprise that cyber risks are the number one business risk for many organisations. A 2017 EY and IIF survey of financial institutions found that 77% of CROs globally ranked cybersecurity as the highest risk.
While chief information officers (CIOs) and chief information security officers (CISOs) may be in charge of mitigating cyber risks, it is the CRO who is ultimately responsible for the overall risk management programme. By virtue of his or her role, the CRO has a broad view of risks across the organisation and can effectively understand how a data security risk can amplify or influence the impact of other enterprise risks, be it reputational risks, compliance risks, or financial risks. The CRO also has the ability to bring together stakeholders and provide the executive team and board with a big picture view of how cybersecurity risks impact the enterprise at multiple levels.
- Safeguarding the customer experience
Social media has amplified the voice of the customers, enabling them to speak up and be heard over issues such as poor-quality service, unfair treatment, and mis-selling. Today, a consumer complaint – whether it’s a video of an airline’s passenger being mistreated, or a tweet about a company’s unethical business practices – can go viral in a matter of minutes, impacting the company’s brand value, reputation, and customer loyalty.
CROs play a key part in mitigating these conduct related risks by driving a corporate culture based on integrity and trust – one that puts customers at the centre of the business and holds stakeholders accountable for their behaviour and actions. CROs are responsible for ensuring that there are sufficient policies, controls, training processes, and reporting mechanisms to keep conduct risks in check. They also need to have monitoring mechanisms in place to flag questionable transactions and employee behaviours.
These requirements aren’t just about checking a compliance box, but about doing the right thing, and treating customers fairly, which in today’s competitive world, can have a major impact on business success and performance.
- Being an enabler of innovation
Rapidly changing consumer demands and fierce competition are upping the pressure on organisations to increase the speed of innovation. There are no margins for error, which means that organisations have to make decisions quickly and get them right. To do that, they need to understand the risks and uncertainties involved and take sufficient precautions to avoid untoward outcomes. This is where the CRO has a pivotal responsibility, enabling organisations to make better, faster choices – for instance, avoiding launching a new product in a market that isn’t ready. By helping stakeholders understand such risks and capitalise on the right opportunities at the right time, CROs can be strong enablers of innovation.
PwC’s 2018 Risk in Review study found that “adapters” – organisations with risk management programmes that effectively manage innovation related risk – were nearly twice as likely as their peers to say that their risk management function helps boost the odds of success or reduce the odds of failure across the business. In fact, adapters that also consider their organisations to be more innovative than those of their peers, are three times more likely to anticipate revenue growth.
Turning to technology
Most of the above priorities of the CRO come down to one core objective – ensuring that stakeholders, particularly the executive management and board, have the risk intelligence they need, when they need it, to make informed business decisions.
For years, that intelligence was buried within mountains of big data. However, today, tools are being developed to sift through this data in near real time. Artificial intelligence and natural language processing are beginning to open up new ways of analysing information to predict risks like potential fraud, or to detect cybersecurity incidents before they occur.
CROs also have access to risk management systems and tools that that can help them automate multiple risk management processes and collaborate with stakeholders in other GRC functions to share and reuse risk information. With the few clicks of a button, they can understand how risks interact with and influence each other, the controls that are in place to mitigate those risks, as well as the associated policies, procedures, control tests, issues, and business units. With this 360-degree, contextual risk visibility, CROs can effectively identify where they should be focusing their time and resources.
As enterprise risks grow more complex and interconnected, CROs play a crucial role. They act as the guardrails of the organisation, enabling the business to go faster, without losing its balance or swerving off the track. Fulfilling this responsibility may be challenging, but it can be achieved with streamlined processes, clearly defined three lines of defence, and robust risk management technology and analytics.
THE EVOLUTION OF THE TECH CFO
Gavin Fallon,General Manager, UK, Nordics & South Africa Board International
Chief Financial Officers (CFOs) have traditionally been seen as behind the technological curve – the luddite of the boardroom, too attached to their Excel spreadsheets to move with the times. But the role of the CFO is now shifting and becoming more strategically significant to the business, putting them in the ideal situation to make much needed changes in the boardroom.
Despite many business functions being transformed by data, the boardroom remains a place where paper presentations are annotated around the table and, when it comes to finance, the focus is placed on the traditional statutory profit and loss structure. This may remain useful for reviewing historical performance but provides no insight into what may happen in the future. As global events – from political upheaval to health crises – have an impact on organisations, the ability to react in real-time becomes more important than ever. It is here that CFOs have the opportunity to make seismic changes in their business.
CFOs now sit in a unique position
CFOs now sit in a unique position, where the traditional responsibility of keeping an eye on the bottom line is wrapped with analytical and operational knowledge to create a far more strategic role. It is by sitting at this unique crossroads and holding a huge amount of knowledge about every area of the organisation that CFOs have the potential to change many aspects of how the boardroom operates. However, in order to fully realise the potential, CFOs must be empowered to take a digital lead.
A lot of the CFO’s most important work takes place on Excel and Essbase, systems that remain rife with risk. In fact, 56 percent of finance professionals believe the spreadsheets they use in their reporting processes are well-controlled and error free, which may well be why 40 percent also believe their reporting is based on potentially inaccurate information (FSN 2018). Not only prone to human error, spreadsheets are also static and do not allow for real-time forecasting or modelling. While CFOs are well aware of this challenge, the fact they have for too long been tied to legacy systems has led to an unintentional knowledge gap about the technology available to enable them to move away from making decisions based on what happened last year, quarter or week.
Seeing the bigger picture
With a greater understanding of the technology available comes an evolution and expansion of the CFO’s role within a business. It is no longer enough to make decisions based on static reporting, focusing on the traditional statutory profit and loss structure. Instead they need to use the tools available to play a strategic role with a keener eye on the future, seeing the bigger picture, anticipating what is next, and having the correct contingency plans in place to mitigate risk.
Technology can provide CFOs with full visibility of the entire company at a single glance, with data at their fingertips enabling them to take into account everything from KPIs to operations, distilling instant insights. This offers a level of clarify that means the answer to ‘what happened’ is obvious, allowing for more attention to be placed on ‘what will happen?’.
Consider a board meeting that is discussing headcount requirements based on the launch of a new product. Using traditional methods, a business may well make presumptions based on experiences when previous launches took place. But since that time, there is likely to have been a whole host of changes, both within the company itself as well as in the wider market – from market conditions for the product to the salary expectations of potential recruits.
The use of such technology, however, does not solely require the buy-in from the CFO, or even the finance function. To fully realise its potential in fundamentally changing how an organisation operates, the value will need to be seen by the entire board to, in effect, create a digital boardroom. While such technology has an impact on all areas of the business, allowing senior leadership to understand the impact of a factory in the supply chain closing, for example, it is the finance function that is best placed to show the value and drive adoption.
Primed to integrate the business like never before
The CFO is becoming more strategically important, combining analytical, operational and strategic value into a single role. They are primed to integrate the business like never before, acting as the central thread that ties all aspects of decision-making together in a single, unified process. To do so, requires a radical transformation of their role, as the pioneers of new technology. Already a trusted advisor, CFOs can now elevate their role with the ability to effectively forecast and help spearhead the organisational culture change that is required for the shift in mindset that comes with such digital transformation. To maximise the potential of this unique position, the CFO must be equipped with the technology that provides them with the full visibility of the company and clarity in decision-making they require.
ADAPT OR LOSE – THE BANKING OF 2030
By Frank Zhou, CEO & Founder of Zeux
Fintech, the world over, is rapidly expanding with the global value of fintech deals last year coming in at $53.3 billion. It’s no news that this continued growth can – at least, in part – be attributed to a shift in the financial industry’s mindset to allow and facilitate the integration of digital tools, such as online banking and mobile apps, to help improve the customer experience. But the rate of integration and adoption differs vastly, from continent to continent. So what makes a mindset towards innovation choose ‘caution’ over ‘audacity’ when it comes to the world of fintech, and how are these different approaches shaping the future of the financial landscape? Frank Zhou, CEO and founder of Zeux, shares his insight on the future of banking.
Asia is wearing the fintech crown
Financial innovation and the adoption of fintech in Europe has been slow compared to Asia who has been more open to moving away from traditional banking methods. China is the largest alternative lending market holding around 90% of market share, with the US coming in second place. Together, they dominate 95% of the market. Although the UK is ranked third, the market share is only expected to peak at a value of $4.8bn this year compared to China’s $265.7bn.
At the head of the pack, Chinese investors are similarly quick to put their weight behind fintech start-ups as they seek to improve the operations of their banks and financial institutions. This forward-thinking approach has brought about the adoption of new-gen technology such as AI and Machine Learning to solve serious finance-relevant issues such as assessing risk and identifying fraud.
The US has demonstrated strong commitment towards adopting new digital technology as well. According to Ryan Battles, EY’s Banking and Capital Markets Lead for the Americas, “banking is finally starting to catch the wave that began with Apple and Amazon raising consumer expectations”.
Europe is only catching up with the Silicon Valley mentality
Europe’s fragmented nature – shaped so by its multi-languages, laws and cultures – pushes boundaries in the way of large scale business decisions. And rather than tackle the international markets, an often go-to European approach is to concentrate on developing business within Europe itself.
The Silicon Valley approach of ‘blitzscaling’, a phrase coined by LinkedIn Co-Founder Reid Hoffman, involves scaling at all costs including “doing things that don’t scale” and making deliberate choices without having all of the information—sacrificing efficiency for speed. There are clear risks involved by adopting this method of favouring quick growth on a global scale, but the results can be ground-breaking: think PayPal.
Europe may not have the tech titans that the US or Asia boast, despite having a strong industrial base, but in a ‘hare and tortoise’ style setting, has the potential to become the global fintech frontrunner, because where Europe can truy flex its muscle is in its regulatory prowess when it comes to AI. As with the rollout of GDPR in 2018, Europe wants to be identified as not just a true regulatory superpower but also as a tech superpower. The latest European initiative is to regulate AI through an ‘ecosystem of excellence’ and an ‘ecosystem of trust’. This new legislation will focus on AI applications that are deemed as high risk. Because as we know, Europe is, on the whole, risk averse.
At the same time, the UK itself continues to attract by far the largest share of fintech investment in Europe, with 83% of all European 2019 fintech investment, states Augmentum Fintech.
Bright future for the UK: Embracing the power of crypto
With the latest figures predicting traditional British banks could lose a further £8bn of revenue in the next five years, it’s no wonder there’s been an – albeit slow – shift to adopt tech-powered solutions in order to compete against trailblazer challengers such as Monzo and Revolut. Among the line-up of traditional banks that are rolling out new products are Santander and RBS, both of which are evolving the way they facilitate payments and transfers of funds.
Aside from these relatively ‘standard’ innovation developments around payment technology – that are more evolutionary than revolutionary – what else could help the financial sector catch up to its industry counterparts and drive real change? Does crypto really have a place? And how safe is it?
The US is embracing cryptocurrency as a safe digital currency because it trusts the technology behind it. Blockchain technology is an advanced way of logging and protecting data, which is difficult to manipulate or hack. It has the potential to improve security, productivity and customer experience when adopted by businesses in the financial sector. In spite of the bad press it receives, blockchain technology has been recognised as an emerging technology that could transform the banking sector due to the ability to improve trust, provide transparency and potentially lower costs, reduce transaction times and improve cash flow.
At the beginning of the year, even the Bank of England announced that it would consider adopting a bitcoin style digital currency as part of a global group of central banks. And that’s a big step.
Major financial markets around the world are still ahead of European and British banks when it comes to fintech innovation. AI and blockchain technologies are still in their relative infancies, and the pace of change and innovation is only going to gather even more momentum. Those who have made the smart decision to adopt, will reap the benefits that are to come. So, it’s more important than ever for the cautious approach that the British banking industry has demonstrated for so long to be replaced with a new, fresh hunger to harness digital technologies. Not only to guarantee growth, but also to remain competitive in a global market.
Innovation breeds innovation, it breaks through traditional models, and brings new opportunities to the table. The UK’s banks need to be smart with their next move and pull up a chair.
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