Emerging Trends in Risk Management

Originally posted on October 9, 2017

Author: Mark Henricks

Photo: Getty Images

Financial executives tasked with protecting against fraud, setting and monitoring spend limitations and maintaining compliance are finding both challenges and solutions in the trends emerging in the fields of risk management and payments.

"The industry is always looking for more effective ways of detecting fraud and compliance violations, such as incidents of money laundering," says Sunil Mathew, vice president of financial crime and analytics for Oracle's financial services group.

In addition to increasing effectiveness, competitive organizations are also eager to boost process efficiency. Large financial enterprises may have thousands of employees working on risk management, payment systems, fraud detection and compliance, Mathew notes.

"The twin problems of detection effectiveness and investigator efficiency are only exacerbated with P2P payments, e-wallets and other new ways of making financial transactions," Mathew says. Financial leaders are responding effectively to these challenges by, among other approaches, employing complex detection algorithms for fraud detection and compliance.

The Effects of New Technologies

In addition to rules-based approaches, machine learning and graph analytics (used to discover relationships in big data) have been shown to increase effectiveness of these functions, Mathew says. "AI and robotics are addressing the investigation efficiency need, and these approaches allow a lot more sophistication into how investigative workload is created and allocated," he adds.

Regulation provides another challenge to applying advanced technologies. Regulators need to have the methods used in detection explained to them, Mathew observes, and concepts like machine learning are unfamiliar to most regulators. "So, a big hurdle in machine learning adoption is model explainability," he says.

Digital technologies including artificial intelligence, predictive analytics and robotic automation are also seen as assisting with risk management and payment system challenges, according to Chuck Saia, CEO of Deloitte Risk and Financial Advisory. Financial services are helping to lead the way in these areas, Saia says.

"For example, we've shared learnings on the use of robotic process automation from the banking and securities sector with other industries to demonstrate the realm of the possible," he says.

The Value of An Innovative Mindset

Deloitte's envelope-stretching approaches to handling risk include using realistic simulations to evaluate cybersecurity. "An exercise to simulate a cyber incident allows organizations to identify gaps in knowledge and expertise on the board and in management," Saia says. "It's an opportunity to practice communication, which is key during and after a crisis."

An innovative mindset may be the most vital resource for organizations to reduce disruption while taking maximum advantage of emerging trends in risk management and payments. "The risk landscape features uncertainty but also opportunity," Saia says. "Organizations that proactively manage and take risks in ways that add value will be well-positioned to seize this opportunity and accelerate their performance."