Operational Risk Management and The Future of Financial Services
As pressures within the financial services industry increase, so does the need for better operational risk management. As such, traditional approaches to mitigating operational risk are no longer effective in the current environment.
Banks and other financial services companies need to adopt new, innovative approaches to managing operational risk. A McKinsey report found that by applying a well-executed end-to-end risk function transformation, costs can be reduced up 20%. This means improved transparency and accountability while still providing customers with a great experience.
Technology, in particular, is changing the way banks service consumers and communicate with third parties, while new business models are emerging that present different risks. It is more important than ever for firms to be able to adapt quickly to these changes and protect themselves from potential operational failures.
A threat to manage
In the past, banks would service consumers through their physical locations. However, with the advent of new technologies such as the internet and mobile devices, banks are now able to provide services to consumers remotely. This has led to a number of new opportunities for banks, but it has also created new risks.
For example, because banks are no longer reliant on physical locations, they are now more susceptible to cyber-attacks. In fact, in 2025, cybercrime is expected to cost the global economy $6 trillion, up from $3 trillion in 2015.
Another factor that is putting pressure on banks is the increasing demand for transparency and accountability. In order to meet the new compliance requirements put in place by regulators, banks need to be able to identify, assess, and monitor risks quickly and effectively.
Other challenges that banks face include the volatility of the markets and the ever-changing consumer behavior. To stay ahead of the competition, banks need to be able to not only manage their existing risks but also anticipate and plan for potential risks.
New expectations for data usage are emerging
In addition to the new risks introduced by technology, there are also new expectations for data usage. Consumers are now more interested in how their data is being used and they want to be able to control who has access to it.
With major data privacy developments like GDPR taking effect, businesses need to be aware of the new regulatory requirements and make sure that their data handling practices are in compliance.
For example, legacy processes and controls that were designed for a world where data was less important need to be updated. Banks need to find ways to protect consumer data while still being able to use it for business purposes. They are starting to implement new technologies like AI and machine learning to help them better understand and manage customer data.
This can be a difficult task, but it is important to find the right balance between security and usability.
External risks are multiplying
As the financial services industry becomes more globalized, the risk landscape is becoming increasingly complex. Unfortunately, the risk of cyber-attacks is only increasing. Hackers are getting more sophisticated and they are constantly finding new ways to exploit vulnerabilities.
In addition, there are a number of other external risks that banks need to be aware of, such as regulatory compliance risk, reputational risk, and economic risk. These risks can come from a variety of sources, such as changes in the political landscape, natural disasters, and social media.
To manage these risks, banks need to have a robust risk management framework in place. This framework should include risk assessment and mitigation strategies, as well as incident response plans.
The role of technology in risk management
Technology has a major role to play in risk management. In addition to helping banks identify and assess risks, technology can also be used to help mitigate those risks. For example, by using data analytics, banks can detect suspicious behavior and prevent fraud from happening.
Technology can also be used to improve communication and collaboration between different parts of the bank. This helps to ensure that everyone is aware of the risks and is working together to mitigate them.
Banks are using cutting-edge technologies like AI and machine learning to help them better understand and manage risk. Blockchain, which is a distributed ledger technology, is also being used to create a secure and tamper-proof record of transactions.
The future of financial services
The financial services industry is going through a period of change and volatility. However, there are also a number of new opportunities emerging. Banks need to be prepared for the challenges that come with these changes, but they also need to seize the opportunities and innovate in order to stay ahead of the competition.
Working with the right risk management company
Operational risk management is becoming increasingly important within the financial services industry. As pressures increase, banks need to be able to adapt quickly and protect themselves from potential operational failures.
Privva is a major cyber security risk assessment expert in the industry. Its cyber risk mitigation technology and solutions reduce the risk of cyber-attacks, data privacy breaches, and other security incidents. Privva has helped many businesses, including banks, to improve their risk management practices and protect themselves from potential harm.
If you are looking for a partner to help you manage your operational risks, then Privva is the right choice. With years of experience and a team of experts, Privva can help you to identify, assess, and mitigate all of the risks that your business faces.