Estimated reading time: 4 minutes
There’s never been a more exciting – and exhausting – time to be in the financial services sector. Technology-driven innovation is changing the face of the industry almost daily. Consumers are getting more savvy, more connected and more demanding, and compliance demands are snowballing. Many business leaders I speak to say they have to run just to keep up with the constant change, let alone grow with it.
This era of disruption doesn’t just bring an entirely new set of risks to the table. It means the way we manage risk and compliance in the future is likely be very different to today. As we discuss in PwC’s 2018 Risk in Review Study, we have to embrace innovation while preparing for risks we don’t even know exist yet, and build businesses that are sustainable for the future.
The biggest change that needs to happen in this new world of risk is for risk and regulation to cease being the sole domain of the risk team. It needs to be a company-wide conversation, driven from the top. It affects every division in the company, from HR to IT to Finance. It should inform every process, from how you recruit and retain people to how you take products to market.
Why? Because as we hurtle into the brave new digital world, we’re seeing an explosion in new products and delivery channels. The problem is, we still tend to manage the risks around these in the ‘traditional’ way, when these risks are being amplified by the use of new technology in ways that we don’t yet understand. A self-driving car commandeered by hackers? Data analytics software that unintentionally reflects biases? You’d better believe it – and be ready for it.
We can’t predict the future, but we can get more rigorous in our risk approach. Ask yourself what the implications of launching a new product, using new technology, will be. How will it impact your people, processes and technologies? You may have a trendy app – but does it keep your client data safe? Would your IT systems be able to support a sudden spike in usage?
These are the type of questions that need to be asked at the start of the development process. We need risk executives to get involved early in innovation discussions, do robust testing to work out glitches, and advise on how to prepare for and address risk well before a new product or service launches. Risk and innovation need to work together to solve business problems.
A good starting point for any financial services provider is to assess their organisational culture. Does your business encourage innovation, and allow failure? How do you make sure you are positioned to respond to risk? What are the reputational risks of not getting this right? How do you get everyone in the business to take responsibility for doing the right thing and ensuring fair customer outcomes? Once you get your culture and organisational mindset right, risk becomes far more manageable.
We also encourage our clients to use technology to their advantage. Going forward, data analytics is going to be key for everything – from customer experience to product alignment. It’s all about using data that’s already available more effectively to anticipate risk. By looking at what the data is telling us about risk, we can anticipate issues and proactively address the risk.
Technology is also your friend when it comes to keeping tabs on regulations and compliance – RegTech, as we say in the industry. One caveat, though: simply throwing technology at the business is not going to solve your risk problem. First look at risk end-to-end, then apply technology as necessary. Your biggest challenge here might be trying to work out which vendors to use. And there are plenty, all selling slices of a bigger solution.
In the end, managing innovation-related risk can actually drive growth and performance – but businesses need to change the way they view risk to make the most of this opportunity. A top tip here is to find the vendor that wants to understand your business and partner with you, and can not only offer a strategy, but implement it too.
Embrace the risk journey. It brings with it a host of opportunities and challenges to grow your business. Don’t let this opportunity slip by.
© 2010 - 2021 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.