While risk managers should stay alert of the emerging technology risks, there is substantial opportunity offered by technology advancement for improving efficiency and building new capabilities. This POV recommends three major areas for risk management to evaluate potential opportunities.
1. Data. While new internal and external sources of data are pouring in at an unprecedented rate, banks need to materially invest so they can both generate deeper insights from ‘old’ data, and gear their risk processes to benefit from new sources.
2. Analytics. Machine learning, natural language processing, self-learning algorithms and other advanced analytics have become affordable and readily available. This will revolutionized the process and efficiency of fraud discovery, debt collection, conduct monitoring forensics, and customer support.
3. Processes. Digitization provides opportunities to automate and create new risk monitoring processes for managing emerging or hidden risks. For example, banks are combining machine learning and transaction data to automate monitoring of conduct risk.
Depending on the extent of digitization, three horizons of change for the risk organization are proposed. While 15-20 percent efficiency gains are expected for the initial stage of digitization, 60-70 percent improvement can be anticipated for a fully digitized risk function, which could translate into tens of millions in cost savings for a typical medium-sized bank. The POV concludes by suggesting five major steps risk management can take to start on the digitization journey.