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THE TECH “RENAISSANCE” OF THE FINANCE INDUSTRY – AND WHAT IT MEANS FOR RISK AND OPERATIONAL RESILIENCE

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Stewart Griffiths is Co-Founder and CEO of Albany Group

 

Not unlike most industries, the finance sector went into something of a tailspin on the wings of the pandemic. While many scientists subsequently said that we could and indeed should have seen it coming, that was an outlier rather than a mainstream view: the possibility was far from “priced into” the market.

This has led to rocketing short term costs, with Lloyds of London expected to pay out up to £6.2bn – an unprecedented figure – but the fallout can also be viewed as an opportunity in disguise. A catalyst for necessary and, in some cases, long overdue change.

The pandemic laid bare a number of structural inefficiencies within the industry, that called for a drastic and considered response. The verdict has been fairly unanimous: the industry has had to ramp up its digitisation efforts, and become more efficient and resilient in the face of rare, disruptive events.

This is overwhelmingly reflected across different sectors. The share of digital or digitally enabled products in companies’ portfolios has leapt forward by seven years, according to a recent McKinsey survey. The reported jump was in fact nearly twice as large for the financial services sector – a testament that the pandemic has sped up digitalisation.

 

Stewart Griffiths

A gradual shift in mindset

Covid-19 has jolted the industry in the right direction by bringing the benefits of technology into sharp relief. It has also reached pockets of the market, which were not always necessarily as open or adaptive to technological change, and demonstrated the limits of a resistant mindset.

Part of this reluctance rests on a perception that technology will be disruptive when applied to certain areas including regulatory compliance, governance and supply chain management. Conversely, where service offerings and internal operations are concerned, the industry has had no qualms in fully embracing the power of technology. This is confirmed by research from Deloitte which found that automating manual processes (77%) remains the definitive area that companies want to strengthen with the aid of technology. Alternatively, consider the use of chatbots in banking, which could result in operational cost savings of up to $7.3 billion globally by 2023.

Other business-critical areas, however, are still being viewed as too complicated or risky for technology to tackle. This robs companies of the opportunity to streamline workflows and processes and strengthen their reporting and compliance credentials, among other things, as long as technology is seen as “off-limits.” It can also compound the challenge of meeting increasingly stringent regulation and compliance obligations.

 

Navigating complex supply chains

The supply chains for financial services companies are extensive, and often involve a number of organisations across multiple jurisdictions. As the complexity grows, so too does the data and the sheer administrative burden that falls on teams that are saddled with emails, spreadsheets, and an onslaught of information.

Technology can help ease that burden. It is estimated that automation alone can reduce the cost of a claim journey, for example, by as much as 30%. With everything managed through a single portal, teams can gain better oversight of third parties, analyse data and automate workflows. We recently implemented such a solution with QBE, creating a bespoke portal using Conect™, our ground-breaking regulatory technology. This served to enhance workflows; reduce operational costs; enable better oversight of suppliers; streamline communication, and ultimately claim management.

 

Getting ahead of the compliance and regulation curve

Assessing risk conduct levels is one the most pervasive challenges facing the financial services industry. Compliance has expanded over the last few years, and so too has the proliferation of data. There is also no reason to assume that this trend will slow down. If anything, the opposite is true, and data burdens are growing, while regulation is becoming increasingly stringent. In 2019, the FCA issued a record number of fines, while the pandemic has brought renewed levels of public interest in ESG in the finance industry, particularly among listed companies. This translates into more pressure for companies to meet complex and demanding compliance obligations.

For instance, taking a closer look at the insurance industry, companies here also need to appropriately assess the rules and determine where they are affected. This can include the delegation of activities such as underwriting or claims handling to third parties which is often not viewed as outsourcing. Regulations, however, still apply and if not adhered to, can result in hefty fines.

The right technological solution can enable financial and professional services companies to gain control and oversight and optimise their risk management. Deploying regulatory software can do just that. It is a proactive, efficient, and responsive way of minimising risks and preventing possible fallout. Risk-based regulatory technology is designed to bring genuine simplicity and oversight to supply chain management. This can serve to embed automated compliance right into the DNA of a business, minimising the possibility of human error, costs and other risks.

 

A tech-driven future for the financial services industry

The pandemic has demonstrated that no industry can afford to be reactive – at the whims of external change, in a constant struggle to keep up. The financial sector is no different, and the sooner it fully embraces a strategic and proactive mindset when it comes to technology, the sooner it will begin to remove the endemic inefficiencies that hold back some of its areas. Far from imposing an additional burden, embracing technology will allow organisations to save in costs, gain in efficiency, and future proof their businesses. Putting in place the right solution and infrastructure to manage risk and supply chains, will also enable businesses to stay abreast of regulation, compliance and increasing data volumes.

In an ever-shifting landscape, this involves adopting user configurable technology in a truly no-code environment. This way, businesses can focus on what matters most to their stakeholders and their futures.

 

Business

How bug bounty programs can help financial institutions be more secure

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Rodolphe Harand, Managing Director at YesWeHack

 

Financial services have been one of the most heavily targeted industries by cybercriminals for several years. One alarming stat from the Boston Consulting Group found these firms to be 300x as likely as other companies to be targeted by cyberattacks.

Furthermore, the pandemic has led to a significant increase in the number of cyberattacks targeting financial institutions (FIs), with around 74% experiencing a spike in threats linked to COVID-19.

With FIs holding some of the largest collections of sensitive and private data, it’s clear they will remain an attractive target for malicious actors, especially as any data stolen can be used for fraudulent activities. This leads to the reputational damage of the financial entity that was compromised and has a knock-on effect in terms of monetary and reputational damage to affected customers.

For CISOs at FIs, the conundrum faced is how do you protect intellectual and customer data, and ensure accountability and transparency for clients and stakeholders, at a time when the pandemic has created budget constraints. Research from BAE Systems found that last year alone, IT security, cybercrime as well as fraud and risk departments had their budgets cut by a third.

Below we look at how bug bounty programs can help to address these pressing issues.

 

Protecting valuable data

Protecting customer and intellectual data has always been a top priority for FIs. However, as opportunistic cybercriminals have a lot to gain by stealing this valuable data, there is a constant evolution of threats, which means FIs must stay on their toes. By deploying a bug bounty program, FIs can work with ethical hackers that have a wealth of experience and unique skills when it comes to identifying security weaknesses within a FI’s defence, thus helping to implement effective security measures to help prevent data breaches.

Building trust among various stakeholders such as customers, suppliers and investors is critical for achieving business goals. By deploying a bug bounty program, FIs send out a message that they care about protecting the security of the data of those they work with – which in turn can have a cascading effect resulting in better business performance.

 

Improving accountability  

For FIs to win customers and keep them happy, amidst the growing threat of neo banks and customer-centric fintech organisations, speed of innovation is crucial. As such, many FIs have adopted an agile approach to build, test, and release software faster to bring online and mobile banking solutions to market quicker. However, this can create frictions between development and security teams. Security mandates are deemed to be unnecessarily intrusive and a cause of delayed application development and deployment.

Yet, with DevOps teams needing to build and deploy applications faster than ever before, an epidemic of insecure applications has emerged. According to Osterman Research, 81% of developers admit to knowingly releasing vulnerable applications, while research from WhiteSource found 73% of developers are forced to cut corners and sacrifice security over speed.

With developers often not having the time, tools, skills, or motivation to write impeccably secure code, there is an evident need to provide developers with more support when it comes to building applications securely Fortunately, bug bounty programs can provide a “fact-based” financial implication of inherent security flaws within the process. This makes it possible to hold development teams and service providers accountable for creating or delivering insecure products, thus addressing inherent security gaps within the business units and helping to drive continuous improvement.

Moreover, security awareness and education of developments teams can be improved significantly for those developers that are directly involved with the management of vulnerability reports for their bug bounty programs. This is because, the mere fact of exchanging information with ethical hackers, or assimilating the thinking of a potential hacker and having proof of concepts of vulnerability exploitation on their application components, naturally accelerates consideration of security early in the development stage and provides ongoing learning.

 

Get more return on your investment

According to Gartner, 30% of CISOs effectiveness will be directly measured on their ability to create value for the business. When security budgets are challenged, CISOs need to demonstrate business value through initiatives designed to enhance efficiency whilst stretching the dollar.

This is where bug bounties can help tremendously. Compared to conventional penetration testing, bug bounty offers a fast, complete, and measurable return on your security investment, with businesses only paying out for successful discovery of vulnerabilities. Equally, businesses get access to hundreds of ethical hackers that can test their programs, each with their own unique skillsets as opposed to only one skilled researcher testing the network. This results-driven model ensures you pay for the vulnerabilities that pose a threat to your organisation and not for the time or effort it took to find them.

Bug bounty programs also deliver rapid vulnerability discovery across multiple attack surfaces. With this approach, organisations receive prioritised vulnerabilities and real-time remediation advice throughout the process to accelerate the discovery of, and solution to vulnerabilities.

Another appeal of bug bounties is that due to the continuous nature of testing, more vulnerabilities are found over time as opposed to pen-testing. This is key to financial institutions that require agility to keep up with the continuous roll-out and updates of applications.

 

The cornerstone to a successful security programme

The risk posed to financial institutions by cyber threats will only continue, as evidenced by the number of data breaches seen in recent times. The COVID-19 pandemic has only exacerbated these risks, especially with almost all FIs having needed to shift to a remote working environment – which has only widened the attack landscape.

For FIs, a bug bounty program should be considered a fundamental cornerstone of any security strategy, with it being a modern-day cybersecurity solution that is well-equipped to tackle the immediate security challenges they face. In doing so, FIs will not only prove to customers and stakeholders their commitment to data protection and security but this will also be help them to avoid the monetary damages that could be imposed by regulators if a breach was to take place.

 

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Five predictions set impact the finance teams in 2022

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By Rob Israch, GM Europe at Tipalti

 

The CFO now has a very different set of responsibilities in comparison to a few years ago; 2021 saw sustainability move up the C-suite agenda, Brexit was officially pushed through meaning new rules and regulations for industries, and pandemic uncertainty caused further disruption for businesses. Understandably then, 97% of UK CFOs believe their role has become more complex over the last two years, according to latest research by Tipalti. Finance leaders, who were already rushed off their feet, are now having to wear even more hats.

Operating in a new climate, with new challenges and circumstances, finance teams must be ready to innovate to find new solutions to changing business needs. From becoming more attuned to ESG ratings to fighting against the burden of manual processes and tasks, below we explore what finance teams can expect to experience in 2022.

 

  1. A tightening of CEO-CFO relationship

As opposed to solely managing financial operations and ensuring compliance, the CFOs relationship with the CEO will intensify in 2022. This shift will see the CFO become increasingly involved in looking at the strategic ways the business can grow and diversify.

Nearly two-fifths (39%) of CFOs have noted a larger demand to collaborate with the c-suite now than two years ago. However, organisations are still slowed down by old ways of working, as nearly a third (29%) of CFOs state they are having to deal with more manual finance operations. As a result, CFOs aren’t afforded time to support the business leader in the way that their job requires.

Rob Israch

By innovating financial processes through automation, finance teams can free up time for the strategic tasks that matter most to the business. In fact, UK CEOs believe that the ability to prioritise innovation (25%) and the ability to improve financial and business reporting accuracy and timeliness are the most important qualities for a successful CFO today.

 

  1. Invoice payments fraud will be harder to fight

Every year, defending against fraud gets increasingly challenging. As accounts payable complexities rise, finance teams will experience payments fraud at an alarming rate.

Finance teams today are tasked with managing more diverse payment methods, increasing cross-border transactions and dynamic tax compliance and financial reporting. Yet, teams struggle to cope when operations are processed manually. The most common perpetrator of payment fraud is manual processes. They are neither efficient nor airtight enough to ensure optimum financial control. Busy finance teams, escalating complexities in AP and error prone manual processing sets the perfect scene for fraudsters to take advantage.

To mitigate such risk, companies need to leverage people, processes and technology. This means investing in robust technologies such as automation to standardise procedures. Data entry will be minimised, end-to-end payments processing visibility will be optimised and policy compliance becomes automated. Not only does AP automation relieve workflows by minimising manual intervention, but the technology acts as a hub for enforcing strong financial controls as the number of people and systems involved in payment processing is reduced substantially.

In addition, 2022 will see more multi-entity businesses emerge as organisations recognise the value of the ‘work from anywhere’ model. It can be challenging to manage finance functions across these multiple entities, and that is often why different business units in geographical locations run their finances in isolation, with varying processes and approvals being managed in different ways. However, with no central control or oversight, you run the risk of internal fraud.

 

  1. Finance leaders will need to focus on ESG initiatives

Following COP26, business leaders are under pressure to set and meet green targets, and many are turning to their CFOs for solutions. In fact, CFOs ranked incorporating environmental, social and governance (ESG) and sustainability into the business and its operations as the greatest driver of complexity in their role (27%), above even the global pandemic (22%).

A key reason for this is that ESG ratings have become an important tool for asset managers and investors to evaluate and compare future investment prospects. Currently more than a quarter (28%) of UK business leaders rank international growth as a top priority for the year ahead, so a less than favourable ESG rating is not an option. So far, the challenge for CFOs has been finding the time to work on sustainable initiatives.

 

  1. Uncertainty will continue to loom over the UK post-Brexit

It has been over five years since the UK voted for Brexit – but it will most certainly be on the agenda in 2022 as new regulations emerge. There are a number of challenges that Brexit brings, and much uncertainty still remains in place.

In navigating the uncharted waters of Brexit, businesses will encounter new hurdles when looking to fill roles, as the Global Talent Visa makes competition for skilled employees more formidable than ever before. With the visa application deadline passed, some employees may have chosen to move back home contributing to headcount issues for finance teams.

Moreover, the UK is still yet to agree many key trade agreements. Businesses will need to stay vigilant – watching out for any changes at relatively short notice and be ready to adapt.

 

  1. Employee wellbeing will need to be prioritised

Along with many other departments, the Great Resignation period has meant finance is experiencing Churn. Whilst the wellbeing of all employees will be a key focus for the c-suite this year, CFOs will need to ensure the work of the finance team is engaging and talent is not wasted on tedious and time-consuming operations. Introducing automation to take care of those manual tasks will free up time to upskill employees, while making them feel valued in their role.

 

The future office of finance

2022 will see finance teams adapting the way they operate to combat new challenges. With agreements signed following COP26, implementing sustainable initiatives is no longer a choice, and in the wake of Brexit uncertainty, businesses will have to face new rules and regulations head on. On top of this, the CFO will need to pivot away from solely financial operations in order to drive strategy, fight against fraud threats while prioritising the wellbeing of their team.

It’s a complex set of responsibilities and will only be achieved if finance teams are able to move away from manual administrative work and towards new technologies and automation capability. A CFOs time is precious and needs to be reserved for the tasks that matter.

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