Back to the Future in Risk Management, Part 3: Preparing for the Digital Tsunami

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28 November 2015


Celent urges the office of the CRO to further address the impact of digitalization on core parts of a financial firm’s client-facing and transactional value chain.

Much has been achieved in recent years from the financial industry’s efforts to comply with regulation and structural reforms. At the same time, opportunities and threats around the advent of emerging digital propositions and operational paradigms are presenting new competitive dynamics and potential disruptive effects. These cannot be ignored from a business risk, financial risk, and operational risk standpoint.

In this report series Back to the Future in Risk Management, Part 3: Preparing for the Digital Tsunami, Celent examines the expected impact and implications of digital trends on risk management and compliance activities.

Technology has been at the heart of the risk management and measurement for a very long time (pre-dating the Internet era), with an emphasis on analytics, process automation, and reporting/visualization technologies. However, what has changed (and is in fact accelerating) is that digital technologies and the Internet are triggering second and third order business model revolutions, based on the augmentation of physical and virtual spheres, innovations in service delivery and customer interaction models, and creation of digital networked organizations. These are both a source of risk and a potential enabler for new risk management capabilities.

“In looking at the risk value chain, we see growing opportunities for financial services firms to digitize their business and risk management operational models in various areas,” says Cubillas Ding, a research director with Celent’s Securities & Investments practice and author of the report. “As transactional value chains are redesigned and digitized, firms will be forced to execute similar transformations for risk, regulatory, and compliance processes, especially those that are directly linked in with transactional workflows.”

In a rapidly evolving landscape, financial services firms must evaluate the hive of activity around digital developments and FinTech disrupters carefully to respond in a balanced and considered manner, and not least to maximize the use of scarce resources, especially in the current heavy regulatory environment.

In the report, Celent analyzes core aspects of the risk management value chain to uncover the best opportunities for impact and presents action points for the CRO office to plan and execute a response to digitize their risk management operational models.

This report contains 9 figures and tables.