It has been ten years since the global financial crisis brought down Lehman Brothers Bank, and shook the financial industry to its core. Since then, new regulations have been brought in, technology has advanced exponentially and the list of potential risks for CROs to keep their eyes on has only grown, and this trend shows no signs of slowing down.
So, what do risk managers have to keep their eye on in 2018?
Banking may be the best industry across the board in terms of risk management, but it is also the most targeted for cybercrimes.
Last year, RiskMinds365 ran a survey with CROs and risk managers, to poll the top pain points keeping them awake at night. Cyber security took a convincing top place, and when the poll was repeated at RiskMinds International in December, it was again at the forefront of everyone’s mind. That concern has already been vindicated in 2018 with the reveal of the Meltdown and Spectreexploits that have left virtually every single computing device made since 1995 vulnerable to nigh-undetectable information theft.
While technological innovation is bringing the individual consumer more autonomy and control over their finances, this shift does increase the risk from cyber criminals and adds to the hurdles to cyber-preparedness for risk managers. As personal banking continues to move online and insurance companies jump on the InsurTech bandwagon, the risks will only spread and grow.
2018 will bring an increased focus on ensuring company culture includes a strong understanding of cyber threats, as well as investment in software and infrastructure to protect banks and their customers. Those who bury their heads in the sand do so at their own peril.
Cars, homes, and even cities are becoming smarter as AI continues to boom. Companies across all sectors continue to leverage their data and bring in more advanced technology, and so banks must also keep up and make use of their assets, including the wealth of consumer information they manage.
Keishi Hotsuki, Executive Vice President & CRO at Morgan Stanley, agrees: “people afraid of [AI] opportunities are completely wrong.” His advice to companies looking to overhaul their operations to maximise the potential in 2018 is to “think about what you’re good at”.
Indeed, AI systems are allowing banks to tackle a variety of risks, so it’s important to consider which solutions will fix a tangible problem and not just be a novelty to tick off the list. From offering customer service options in the guise of robo-advisors and chat-bots to correcting for operational risks using fusion pricing services, 2018 will see more banks getting on board with AI, especially in task automation and regulation.
Few could miss the ongoing debates and media coverage surrounding Brexit over the past 12 months. As the U.K. prepares to leave the E.U. in 2019, and negotiations advance from divorce issues to future relations and trade, banks will need to keep a keen eye open.
CROs will need to take every report of a new referendum, breakthrough, or setback with a grain of salt, and remain focused on actionable steps to preparing for Brexit, be it a soft or hard exit.
Guy Verhofstadt, Chief Negotiators for the European Union and ex-Belgium Prime minister insists there is no risk of further countries following suit, an assertion which should placate risk managers with a focus on non-financial risk as they take stock of geopolitical instabilities over the year.
Preparedness is key here, and those who plan for differently contingencies will undoubtably have an edge when managing unpredictably risk factors in 2018.
“If you combine big data, advanced analytics, digitisation, some smart people, and a budget you can achieve great things,” says Marcus Chromik, CRO & Board Member at Commerzbank. Thus far, however, much of the potential of big data has gone unrealized, as many of the margin improvements anticipated of the companies expected to benefit from big data utilization have gone overlooked, or delayed.
Banks will continue to rationalize their big data efforts in 2018, and CROs will need to travel along that path as well, ensuring proper safeguards on data usage and continually questioning the conclusions drawn from big data analysis.
While the U.S. under the Trump administration continues its deregulation push, lawmakers in the EU and elsewhere continue to new regulations, especially regarding personal information and emerging technologies. The boom in cryptocurrency interest that occurred in the closing months of 2017 shows no signs of abetting in 2018, so expect increasing regulatory scrutiny, especially as investors and speculators continue to move into so-called “alt-coins” in search of windfall returns.
IFRS9, Basel IV and Mifid II will also be making waves across the financial industry, and those working in risk management will need to pay close attention. Some regulations are coming through to deliberately overhaul the trading landscape, while others have their roots in the financial crisis, now 10 years gone. Either way, in an industry with other, and sometimes louder, competing priorities, it will be important for banks to allocate enough resources to effectively implement strategies to stay ahead of the changes.
Finally, as if closing full circle, cyber security will also be a major subject of regulatory interest. U.S. state investigations of the 2017 Equifax data breach that exposed the information of over 145 million individuals continue apace, and with GDPR coming into full force over the coming months, it will be important for banks to be on top of their cyber programmes.