The past decade saw some impressive changes brought into the aorta of risk management. And the change is showing no signs of slowing down, now.
In order to keep pace with the changing times, you need to get to the crux of these five trends that are shaping the role of risk management in banking sector:
Though magnitude and speed of regulatory change varies across countries, the future is definitely going to see more regulation – both financial and non-financial. The reason being- public sentiment- public no more tolerates misuse of its hard-earned money. Moreover, governments are increasingly increasing regulatory pressure on financial institutions, asking banks to help in cracking down illegal financial transactions, while encouraging collection of taxes.
Technological innovation created a new set of rivals: Fintechs. They don’t want to function like banks, but they want to establish a good direct customer relationship and hit the very most lucrative part of business – origination and sales. So, if banks want to make their customers happy, they have to step up their game – day by day customer expectations is going to rise.
Technology enables banks and their rivals to offer amazing customized services. It may be a bit expensive on account of banks because of the intricateness of supporting the process, but over long-run, it would reap its benefits.
Technological innovations are evolving, enabling the risk management techniques to make better risk decisions at reduced costs.
Undeniably, the risk function is required to detect and manage new and challenging risks over the next decade. Model risk, contagion risk and cyber security risk are some of the new genre of risks that have newly emerged.
Thanks to Behavioral economics, the process of understanding how people come to decisions navigated by conscious or unconscious biases is now easier than ever. For a start, you must know that business is attracted towards being bias. And hence biases are extremely relevant for bank risk-management functions, as banks are the ones who are in the business of risk-taking, and every risk decision is subject to ample biases, which needs to be fought off.
The risk function can play a major role in de-biasing banks. In fact, it can even be served as a center of excellence for churning out de-biasing processes and techniques.
— DexLab Analytics (@Dexlabanalytics) September 11, 2017
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