Financial firms struggling to assess technology risks

The report by Accenture, is based on a survey of almost 700 risk management executives across banking, insurance and capital markets globally. 

It has noted that the external risk environment is becoming increasingly complex, with risk teams in Australia having to adapt their approaches to contend with new threats and a ramped-up rate of change. 

Almost half of Australian respondents (46 per cent) said that the risk function is, at best, only somewhat effective at responding rapidly to changes in the external risk environment.

Only 8 per cent of Australian risk managers described themselves as fully capable of assessing the risks associated with adopting artificial intelligence across their organisations. 

Fewer said they were fully capable of assessing the risks associated with robotic process automation (RPA) or blockchain (6 per cent and 7 per cent respectively). 

Tales Lopes, managing director in Accenture’s financial services practice in Australia and New Zealand said risk and compliance functions are “undoubtedly under immense pressure” following the royal commission and now in the COVID-19 crisis.

“COVID-19 is showing us that holistic risk management is more urgent than ever, putting additional pressure on banks to have the right capabilities in place,” Mr Lopes said.

“Data analytics is also very much at the centre, as most of today’s regulations are data-driven. This means that financial institutions must prioritise risk data management systems, whilst ensuring quality, security and transparency, providing new reports for multiple purposes.

“Robust data analytics is more crucial than ever, particularly now during a global pandemic of unprecedented proportions, enabling risk managers to generate insights and risk strategies in these uncertain times.”

Further, risk functions are grappling with the threat of cyber and financial crime, with concerns around customer data. 

“We know that there has been an increase in the number of domains that have been registered globally to support a wide array of malicious activity, including credential harvesting, carding fraud and malware installation,” Mr Lopes said.

According to the study, the top three obstacles to implementing advanced analytics across the risk function are data residing in silos, lack of clarity around regulation, and integration challenges with legacy systems.

More than two-thirds of Australian risk managers (70 per cent) said they are improving their ability to collect enterprise-wide data, and 62 per cent said they are honing their ability to analyse it. 

The survey noted 61 per cent of Australian respondents believe that other functions recognise the important role that risk plays in driving positive business outcomes and 80 per cent said they have a close working relationship with the finance function. 

Globally, 73 per cent of respondents whose risk functions use machine learning were satisfied with their progress during the past two years in preparing their business for volatile future scenarios, compared with only 45 per cent of respondents globally whose functions don’t use machine learning or advanced analytics.

While nearly all risk functions had started using RPA to automate routine tasks, only 41 per cent of respondents said they apply advanced analytics and predictive modeling to their datasets, with 3 per cent applying machine learning or AI. 

According to the report, the lack of adoption is a missed opportunity for risk functions, given these technologies’ immense potential to mitigate risk and improve performance.

“New and emerging technologies such as machine learning, advanced analytics and artificial intelligence are being deployed to help manage this data and mitigate these risks; however the success of these technologies will require Australian compliance leaders to skill up, to build and articulate the desired outcomes,” Mr Lopes said.

“Automating certain compliance tasks can allow compliance professionals to focus on conduct and risk culture, ensuring the mistakes of yesterday are not repeated. 

“The stakes have never been higher, and ongoing remediation programs are strong reminders of the consequences of improper compliance and risk monitoring.”