Horizon scanning: how to future-proof financial services

By Dale Bowes


The UK – and the world – is currently experiencing economic turbulence expected to continue throughout 2023 and beyond. The country’s Monetary Policy Committee recently suggested that inflation will rise, signalling that further increases to the Bank of England base rate may be necessary.

As inflation persists alongside a cost of living crisis driven by supply chain issues and escalating energy costs, how can financial services firms navigate the macroeconomic landscape?

Forward-looking financial services

Often, firms rely on senior management opinion to understand and interpret information, leading to inconsistent outcomes. This reliance on individuals, teamed with extensive Risk Appetite Statements and stringent Risk Management Frameworks, can make it difficult for firms to respond to fast-moving events with agility. The solution? Embed systematic, robust, outward-looking tools like horizon scanning within the organisation to pre-empt trends and inform decision-making.

Horizon scanning has long been used across different industries and sectors to understand the regulatory environment, predicting future outcomes by assessing the macro landscape as opposed to analysing backward-looking indicators. By pivoting regulatory horizon scanning into external events horizon scanning, financial services firms can better anticipate future change.

Firms can apply three strategies to create a reliable, optimal approach to external events horizon scanning:

1. Create a solid foundation with a single data source

Firstly, firms need to establish what data is most relevant for them, and its impact. For example, weather warnings will be important for insurance firms but not necessarily for debt collection agencies. Relevant data sources must be documented, with rules for how often the data will be refreshed and collated. This creates a solid foundation for external events horizon scanning by governing effective data handling. As data sources become established, firms can start to look at how to interpret the data and ultimately produce outcomes to inform reliable decision-making. We supported a Global Tier 1 Bank client to create a robust horizon scanning tool, enabling the executive team to understand which events were most impactful to the firm and how to appropriately respond. The tool allowed the client to prepare regulator responses in advance, while supporting a high level of market awareness.

2. Clearly display data with dashboards

The most effective external events horizon scanning tools often come in the form of dashboards. These digital displays help the user to quickly understand the status of a range of data points, and how they can react to the information to focus the team’s attention on the most urgent of matters while implementing plans for events that are less imminent.

To form a dashboard, the firm needs to set thresholds for the data that is collected. Thresholds are key to how data is reported on the dashboard and must be established carefully. Once the thresholds are established, a dashboard can be created. A red, amber, and green (RAG) rating system aligned to the organisation’s Risk Management Framework and Risk Appetite Statement – with user alerts – can identify concerns and mitigate risks before they become issues. These firm-relevant outcomes can be fed into decision-making and support management to make key, evidence-based decisions.

3. Step out of siloes with ‘read across’

Often firms carry out horizon scanning within their vertical function. For horizon scanning to be truly effective, it must provide a clear ‘read across’ of all organisational risks and opportunities. When building their data source, the firm must be conscious of all of the data points and their potential impact. It is best practice to have a central firm-wide function that gathers data points and creates thresholds in collaboration with all verticals, providing a broad view of the external landscape to optimise the firms’ view of the external landscape and capture the input from various subject matter experts within each vertical.

By following the above three steps, firms can create a robust, systematic approach to external events horizon scanning. Not only will this help them understand how external events will impact their firm – it will also identify what is driving future trends, creating a better platform to understand external events and make critical decisions in 2023 and beyond.

About the authors

Dale Bowes PA risk and regulation expert

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