Risk Management: insights from the experts

Leading risk management experts talk about the ever-evolving challenges facing organisations and how to overcome them.

If there’s a universal truth to successfully managing risk, it’s recognising that the job is never done. It’s an ever-evolving challenge – be that for fraud, cybersecurity, reputation, financial, operational or regulatory risk. As a result, financial institutions, governments, corporates, non-profits – even individuals – must constantly review and adapt their risk management processes and policies to be as secure as possible.

As we navigate current challenges, evolving scenarios and future trends, how can companies remain open to a world of possibilities while effectively managing risk? LSEG Risk Intelligence joined industry leaders to share insights and discuss strategies for overcoming obstacles and embracing opportunities in the risk management landscape.

For Constantine Malaxos, vice president of global partners and alliances at third-party risk management specialist Process Unity, a major consideration in risk management is your supply chain: “It comes down to understanding who you’re doing business with,” he says.

He points to the 2008/9 financial crisis when banks couldn’t tell the regulators to whom they were lending money. Billions of dollars were lost, triggering economic hardship for corporates and households worldwide. It led to a slew of regulations aimed at preventing a repeat. Complying with these – and subsequent regulations – is a must.

“If you don’t do the due diligence [right at the beginning], it really hits your bottom line,” Malaxos says.

One of the big drivers of risk is the move away from paper. DocuSign has been helping organisations with this trend since 2003. It recently found that poor agreement processes were costing organisations $2 trillion a year. Interoperability and security are key to getting this cost down.

Says Steve Park, technical director global partner solutions at DocuSign: “Interoperability, to be able to take data that they already have and be able to integrate that into other systems. Our e-signature solution [is] automating the checks and enhancing customer journeys.”

Digitalisation in financial services is also behind one of the biggest shifts. Sonum Puri, director of product partnerships at fintech Fenergo, sees the different regulatory demands related to keeping digital banking safe as a major challenge.

“Managing complex regulatory requirements, especially when [banks] have clients that they need to onboard or they need to manage a risk perspective in different jurisdictions, keeping up with regulations as they change – our platform takes the pain away,” he says.

According to Puri, the key is to have a consolidated view of data, so it can be quickly accessed and repurposed. When this is achieved, regulatory compliance is more efficient and service friction reduced.

The speed and ease of digital banking has really taken off, especially in the UK where more than 21 million people now engage with open banking. This popularity puts a huge burden on banks to prevent fraud and identity theft.

Says Eliza Wyman, product director of platform and partnerships at business services group Experian: “We’re looking at a true fraud rate of 1.7 per cent of all UK submissions [transactions], which is a staggering figure.”

As a result, more institutions are turning to technology. But that on its own doesn’t make for efficient risk management. The challenge is to streamline partners – ideally into one contract, using one API.

When it comes to compliance, it’s not just regulations and how they change across jurisdictions and over time that add risk. So, too, does the evolving sanctions landscape. According to a recent LSEG report, sanctions inflation – the rate new sanctions are applied – continues to rise. Since January 2017, the growth has been 370 per cent, with more added every year.

Kieran Holland, head of technical solutions at KYC and AML compliance specialist FinScan, sees the problem as twofold. “The pace of change, that is difficult. But I think the other issue is the level of complexity. It’s not just one sanction list; there are frequent new sub-lists,” he says.

This means organisations can’t simply put a system in place and know sanctions are covered. Rather, it’s about finding technology that’s user-friendly, adaptable and scalable, and constantly making sure you’re up-to-date with the evolving requirements.

Data plays a huge role here. That means understanding what you’ve got, how current it is, how accurate it is and how best to use it. “Just jamming two data sets together and hoping something meaningful comes out the other end, we’ve proven time again that’s not a good approach,” he says.

Change is the only constant – risk managers need to be continuously alert to new threats. Clearly, those threats can be malicious – fraudsters, hackers and the like – but they can also arise from internal change, such as acquisitions, mergers, new technology and new processes, as well as changing regulations, legislation sanctions and more. By paying attention to interoperability, scalability, transparency, adaptability and the ease of use of technology, managers can stay on top.