Charting the right path forward
Tomorrow’s high-performance risk management functions will be notable for skills and capabilities beyond technology. The following five steps should be considered when designing and deploying an adaptive risk management vision for the future.
Financial services firms that follow these key actions will build in trust by design into their processes.
1. Update the risk governance framework to be more adaptive
Taking on an adaptive risk framework requires changes to traditional risk management models, though not necessarily drastic changes. For instance, front-line business managers will a need comprehensive, end-to-end view of both financial and nonfinancial risks if the company is to control individual customer moments and long-term customer journeys.
Risk and compliance functions should embed with business functions to understand and help design the latest product and service innovations. Designing risk into the product and services enables for the automation of future monitoring once the change is in production.
They will need such engagement to manage and monitor real-time risk, predictive business models and significant third-party interactions. Another updated role for risk teams is to provide insights and expectations to help the business monitor overall effectiveness.
2. Make certain that the team has the right skill sets
New skills — both “soft” and “hard” — are necessary for new risk management approaches. For example, firms will need people with the skills and knowledge to cover across risk topics (e.g., compliance, operational risk, resiliency) to manage the customer journey, and for specific types of new risks (e.g., cloud, cyber or blockchain). Having the right skills at the table at the right time for specific changes will help in identifying new and emerging risks.
3. Deploy product and service management capabilities
Embedding risk controls within real-time product development processes requires that companies have technology to track client actions in real time, with automated triggers for product and service mechanisms that are designed with a set of risk rules to instantaneously adjust product features (e.g., price or terms).
Risk leaders should also collaborate with the business on initial product designs. The goal should be to identify a comprehensive set of client attributes and behaviors that map to key risk considerations.
Such insights are necessary for banks to quickly launch, scale and manage new, risk-informed products and services.
4. Strengthen resiliency
Resiliency, cybersecurity and privacy are critical considerations for both satisfying customer expectations about reliability and protecting brand reputations and information assets. Resiliency should be infused throughout the extended enterprise, including in the operations of third- and fourth-party vendors, especially critical vendors.
Since preparedness is essential to resiliency, firms should conduct simulations under a variety of disruption or crisis scenarios.
5. Adopt data intelligence and more advanced architectures
There is little doubt that risk functions will seek to use data more effectively and automate more processes in the future. To do so, they will need a robust foundational platform that integrates with a broader governance, risk and compliance ecosystem.
Such platforms can enable more automated risk monitoring and support stronger data models for improved business intelligence and decision-making.
Bottom line: trust-driven growth requires a new model
The need to build trust and engage consumers at critical moments is reshaping the future of risk management across financial services. As business models evolve in response to tech-driven disruption and rising customer expectations, risk management functions must similarly transform their approach and capabilities.
While there are many moving parts — including technology, processes, people, and organizational and cultural factors — for risk management leaders to manage in this evolution, the first-order goal of building trust with more demanding customers should serve as a guide on the journey ahead. At EY, we believe that journey begins with trust by design.