Page 40 - Banking Finance April 2021

ARTICLE

increasing payment providers' responsibilities in the areas Regulatory divergence, geopolitical instability, and the
of privacy and security. The net result is an industry that may possibility of a downturn have created a host of impending
become more competitive, with interoperability still a risks, requiring financial institutions to rethink traditional
challenge in the near term. approaches to risk management.

4. How the profitability with technology Additionally, non-financial risks remain top of mind for
regulators and banks alike and many have begun to sharpen
looks like? their focus on this emerging subset of risks. While banks have
It is predicted that the cost savings from banks' chatbot made notable strides in assessing and mitigating risk across
usage alone will reach $7.30 billion worldwide by 2023, up the enterprise in recent years, the next decade will likely
from an estimated $0.21 billion in 2019, according to a test their ability to continue to modernize the risk function.
February 2019 report from Juniper Research which clearly
gives an idea that ignoring any small innovations that are The top leaders of the banking industry can start by
happening in the industry can not only bleed the profitability contemplating what might be an optimal risk management
but also can ruin the complete existence of the existing model. They should first re-evaluate their lines of defence
model also. to determine where duplicative efforts likely exist between
the first line (where risk is owned and managed) and the
second (where risk is overseen. Eliminating these redundant
risk management practices could allow them to overcome
cost and process inefficiencies and enable the first line to
take on more ownership of risk.

Banks should then consider how best to leverage the power
of new technologies which has yet to be fully realized.
Technology has played a significant role in risk management
for a long time. But thanks to recent advances, it can now
help banks reshape their risk management program in more
meaningful ways. Very few banks, however, report that they
have applied emerging technologies to the risk management
function which could be a missed opportunity. Technology
can increase efficiency by automating manual processes,
assist in identifying emerging threats and provide insights
into risks and their causal factors. Robotic process
automation (RPA), for instance, can be used to reduce
Figure 1 human error by flagging exceptions in large data sets. And
machine learning, coupled with natural language processing,
5. How risk management will look like could convert unstructured data such as emails into
structured data that can then be analyzed to predict where
in the next decade?
risks might occur.
When we started the banking carrier, risk means it was only
credit risk and all other risks were not looked at very At the same time, banks should be mindful of the additional
seriously though the other risks do exist. If you lend then risks these new technologies might create. Third-party
only you are associated with risk were the viewpoints. Over relationships with external technology vendors, suppliers or
a period we can see risk in every action for that matter service providers could expose banks to information misuse
technological risk especially risk in relation to technological and theft (insider risk), system failures, business disruptions
obsolescence has in fact overtaken any risk as the same may (operational risk) or regulatory noncompliance. On the other
have an impact on the very existence of the current model hand, biases, automation errors and rogue programs could
of banking which is having a larger presence. result in algorithmic risk.

40 | 2021 | APRIL | BANKING FINANCE