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Every decision in the future will be informed by AI

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Future riskAfter the successful launch of FutureRiskMinds at RiskMinds International, we continue to highlight the thought leadership of up and coming risk managers across the industry. Here, Alexandra Economides, Deutsche Bank,discusses what she sees defining the future of risk.  

The future of risk management in banking will look very different to what we are familiar with today. We are already seeing the risk management industry undergo a shift in operating model, with cost pressures and increased regulatory demand driving changes in location strategy, talent and risk management priorities. According to research (1), 50% of staff in risk functions are dedicated to operational processes, compared to only 15% focused on analytics. By 2025, the numbers are expected to move closer to 25% and 40%, respectively, as the risk function of the future focuses more on value adding areas. Resources on traditional risk activities shrink by a half (2) in a shift towards more focus on strategic risk advice, management and more efficient operations.  A continuation of emerging trends will continue to drive this change, notably technology and digitalisation, regulatory demand and increased seismic shifts in the political landscape, ultimately leading to a paradigm shift in risk management practice.

AI is not about replacing humans but about augmenting our capabilities.

Every decision in the future will be informed by AI.  Certain firms call this Augmented Intelligence, not Artificial Intelligence, as AI is not about replacing humans but about augmenting our capabilities. While AI is already being utilised in some areas of risk (for example Regulatory Compliance and Conduct Risk), machine learning and big data are opportunities that many banks have not yet tapped into. By doing this they can drive material cost reduction and compete with financial-technology companies who are harnessing technological innovation to tap into key parts of the value chain. Technology and digitalisation will free up capacity for risk managers to spend more time on analytics and have the tools to more effectively influence the Business.

Automation opportunities are available along the entire risk management life cycle, from risk measurement to risk monitoring and reporting, and across all risk types. For example, real value can be derived from big data infrastructure to detect vulnerabilities and risk anomalies in the portfolio. Trends and patterns can be identified through using business intelligent techniques which search through historical data to inform design of stress tests. Real-time preventative controls can be employed to ensure that issues are being dealt with upstream and do not propagate, reducing operational risk and therefore resulting in material cost savings to the firm.

FRTB is an opportunity for banks to revamp their front-to-back infrastructure through implementing full revaluation methodologies.

Regulatory demand is a challenge but also a big opportunity for risk functions to improve their technological sophistication. For example, The Fundamental Review of the Trading Book is an opportunity for banks to revamp their front-to-back infrastructure through implementing full revaluation methodologies, focusing more on data quality and risk and P&L consistency. I believe that many banks are indeed using this as a front-to-back simplification lever. This will lead to enhanced accuracy, flexibility and closer Risk and Finance alignment.

A well-integrated Finance & Risk operating model is the future for risk management in banks, where closely aligned reporting, data services and infrastructure models enables cost effectiveness and front-to-back efficiencies. Talent mix will shift to risk managers becoming analytic focused and trusted advisors of the business vs. today’s data, control  and regulatory bridge.

DISCLAIMER: The views expressed in this article are the views of the author and do not necessarily reflect the views of Deutsche Bank AG

[1] McKinsey&Company, “McKinsey on Risk”, 2016

[2]  Oliver Wyman, “The Future of Risk Management”, 2017


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