With FutureRiskMinds, we ask rising stars of the risk community what they think will happen to risk management over the course of their career. What did Alla Kolesnikova, Chief Product Owner, Risk Data Management Office at ING have to say?
The past decade has forever transformed risk management in financial institutions. Risk management costs have substantially increased, while a wide array of different risk regulations have put constraints on the balance sheet growth. Frequent ad hoc reports, stress tests and supervisory inquiries have set the agenda and reshaped recruitment priorities within the risk function. Enhanced regulations have driven up risk budgets and triggered multi-year transformations within financial institutions, all the while moulding a new era for the risk management function that enables it to tackle the complex digital challenges of tomorrow.
Risk, finance, data management and technology are continuously working together to address new external data requests and regulations stretching beyond traditional risk management like General Data Protection Regulations and Principles of Effective Risk Data Aggregation and Reporting, among others. This cross-functional collaboration is fostering solution-oriented thinking and innovation within financial institutions, which is not only fueling efforts to maintain compliance, but also translating to greater business value creation. For example, enhancements in data quality and governance surrounding external reporting processes are strengthening internal reporting and decision-making processes.
Risk, finance, data management and technology are continuously working together to address new external data requests and regulations stretching beyond traditional risk management
Given the overarching emphasis on cost-cutting and streamlining processes throughout the financial industry, risk management practices should focus on greater efficiency and effectiveness, and embrace standardisation and automation. Not only will such efforts lead to reduced operational costs, they will also enable the Risk Manager of tomorrow to spend more time focusing on content quality, while de-cluttering their calendars so they can spend more time leveraging and exploring the wealth of emerging technologies at their fingertips. Financial institutions, software vendors and consulting firms alike are increasingly finding creative ways to automate mundane tasks, manage compliance, and apply machine learning in model development. Promising – yes – but unquestionably, new technologies and solutions have embedded risks, ranging from complexity of algorithms to insufficient availability of trained personnel, and thus should be approached with certain degree of caution.
Modern data infrastructure and advances in computer sciences are enabling greater customisation and enhancement of risk management techniques. For example, with broader data types and sources being used to carry out customer assessments, financial institutions can offer existing and new clients in the traditionally higher risk consumer and small and medium-sized enterprise segments targeted and smartly priced products. Looking ahead, a more proactive and forward-looking risk management function can yield even greater benefits for institutions and their clients by enabling Risk Managers to analyse and monitor real-time data streams and foster collaborations with Fin- and RegTechs.
All things considered - centralization of supervisory oversight and mounting regulations have transformed risk management into an agile, data-driven function that has emerged at the forefront of predictive analytics and machine learning. Drawing on the hindsight and experiences of the risk management industry’s ongoing regulatory shift, the industry is now well-positioned to start focusing on the execution of greater value-adding activities. Modern risk management can expedite complex decision making and enhance the customer experience at all levels, enabling a competitive advantage for forward-looking institutions. As such, greater digitisation of risk management operations should be core elements of any modern financial institutions’ near-term vision and strategy.
