We are convinced that everyone has noticed the number of scandals involving financial crime. This has led to public mistrust, and not only in the banks involved but in the entire industry. At the same time, low interest rates are making it a challenge for banks to create value for the shareholders from the investment market.
Risk functions needs to understand these factors and stop focusing primarily on the ‘normal’ types of risks such as Operational Risks, Compliance Risks and Financial Reporting Risks. Instead, they should start focusing on re-building (and maintaining) public trust. If they don’t, banks will not be relevant in the future.
Sustainable and Circular Economy
A societal green agenda will impact the way the financial sector does business going forward. The health of the environment is a priority for customers, they expect companies to help build a sustainable future. We believe that taking a ‘green’ profile will be increasingly important going forward.
This means, for example, that employees need to act responsibly and conduct business ethically. From a risk perspective, this can be challenging to monitor as traditional KPIs won’t measure such requirements.
Low interest market
In an investment environment characterised by continuous low interest rates that make it difficult to generate significant returns, the cost for the customer will continue to be a significant competitive driver.
To maintain solid returns, the financial institutions will look for alternative investments and this will challenge the risk function as they traditionally come with a higher ‘unknown’ risk than traditional investments.
New value streams
As another effect of the low interest rates in the market, financial institutions will be looking for other ways to generate revenue. We see a number of pension funds looking for ways of tapping into their customers’ lives before retirement.
Cyber risk a growing concern
The risk of a cyber-attack is a growing concern. Studies show that this risk is bigger than most people expect as only the top of the ice-berg is communicated in the press. Most companies do not want to be exposed in the press, keeping a number of attacks away from the public.
Digitisation, automation and RegTech
Due to the increased storage and use of data in the sector, we believe the risk function needs to be more data-driven and automated. This forces the risk function to change mindset and ensure that needed capabilities are in place.
PA is part of Financial Risk Conference 2019
We’re proud to be part of the sixth annual Financial Risk Conference on 11-12 December 2019. The conference brings together risk managers and others responsible for risk management to discuss the latest trends and developments in risk management and legislation. This year, Simon Rath, PA financial services expert, will moderate the discussions between the attendees.