Managing risk, regulation and sustainability will be key to success for financial institutions throughout 2019, but what will the biggest risks look like, what can you expect in terms of regulatory development, and how can you create sustainable risk management during a year of ongoing change?
Beate Born, executive director, risk and regulatory management at UBS Wealth Management, and industry keynote speaker at A-Team Group’s TradingTech Summit in London on February 27, 2019, will address these questions and more! Meantime, we spoke to her to discover some of her early thoughts on these issues before the event.You can register for the TradingTech Summit here and listen not only to Beate Born’s industry keynote, but also keynotes on the impact of Brexit on trading, and innovation trends including increasing interest in ethical, environmental and governance concerns. The Summit will also host a wealth of panel discussions that will provide you with insight into some of the most pressing trading technology issues.
Question: Beate, where do you see the biggest risks for financial institutions in the coming year?
Answer: I will answer the questions from an operational risk perspective, so some experts from other areas might have completely different views. That said, I think one of the major risks for modern global financial services organisations is not having their ops risk under control. Remaining compliant with the increasingly detailed and complex regulations while keeping up with the latest threats requires an inclusive risk culture, strong analytics and a flexible risk team with strong business awareness.
With increasing cost pressures, efficiency and effectiveness become ever present mantras. For some of us this will be a complete rethink of the risk function. When looking at what we will be most occupied with, I would suggest the following:
- Geopolitical developments
- Cyber threats / privacy
- Rapid regulatory changes
- Third-party dependency and third-party risk
- Lack of organisational agility (knowledge and talent management).
Question: Where are we on the regulatory spectrum and how do you expect this to develop?
Answer: This is a longer question to answer. For several years, we have had a massive influx of regulations in the areas of investor protection, market infrastructure, the derivatives market, tax and privacy. Many are of the opinion that regulations will subside soon and that consequently there will be less and less cost connected to regulatory implementation. While I would say it is unlikely that entirely new regulatory concepts will emerge on the same scale as those we have experienced in recent years, I think we will be confronted with new challenges in this area. These include:
- As regulators grow more and more sophisticated, the enforcement of regulations will become more stringent.
- With regulatory concepts having solidified over the past years there will be less and less leeway for error and small compliance gaps.
- A regulatory implementation is never final, it requires constant monitoring and updating. For example, with developments such as Brexit, the regulatory landscape changes in Europe, so all EU regulations must be revisited wherever firms are engaged in UK business.
- With advances in technology, regulators will expect a rapid turnaround time when new requirements are published.
- Lastly, regulations will always follow global macro-trends as they originate, for example, at the UN or G20 level. The financial crisis and influx of technological change was the most recent big initiator of regulations. The next one might be sustainability and the fourth industrial revolution.
Question: What does sustainability mean to you in the context of risk management?
Answer: Sustainability means to ‘meet the needs of the present without compromising the future’. Applying sustainability will have a two-fold meaning for the financial services sector:
- On an organisational level, financial institutions will have to ensure they create a sustainable risk management culture, process, workforce and the right level of priority within the organisation. Cost efficiency, talent management and state of the art technology are crucial to the success of this endeavour. So, concretely, I see three major factors:
- A clear focus on technological advancement
- Expand the risk culture beyond risk teams and blind control processes
- Create a risk function that actively keeps up with regulatory fragmentation, geopolitical developments and most pressing threats, for example, cybersecurity, while always taking regulator, client and business views into account.
- On a regulatory level, we need to keep an eye on global developments in sustainability. Intranational organisations are looking to financial services to play a gate keeping role when it comes to sustainable and impact investments. This will be our next big challenge in taxonomy implementation and product classification. Regulators such as ESMA are already publishing the first regulation drafts in this context.
Question: How will fintech and regtech change processes, platforms and data management through 2019?
Answer: Robotics, artificial intelligence, machine learning, big data, cloud computing and so on – we all know the big words and there is a reason for that. The fourth industrial revolution is in full swing and it is not just a ‘thing’ for tech giants like Google, Facebook and Amazon. It is not a question of ‘if’, but of ‘when and how’ financial services will follow this tech trend. With increasing pressure to manage, structure, report and protect client, trade, product and company datasets in ever shortening time frames, we have no choice but to take action. Environments are complex, threats are sophisticated, and change is constant. Banks will have two options:
- Outsource to third-party providers
- Invest to build solutions inhouse
In the past, many have defaulted to deal with external demands through in-house development. Now, external providers offer highly sophisticated and focused solutions. Banks must have very stringent cost benefit assessments in place and work towards opening their infrastructure. As soon as financial institutions can safely open up to third parties, the financial services value chain will be broken up considerably and split into more and very focused players.