Technology transforms risk management for financial institutions

14H05660_RF.jpgAs technology transforms risk management, financial institutions face both opportunities and threats. Digital processes have the potential to make compliance more effective and efficient but, for many organizations, major technology improvements are stymied by cost and talent constraints.

The use of compliance-led shared services models is helping overcome these issues, but a series of major hurdles is preventing their wider adoption. Acting now to clear these barriers can help institutions and regulators seize the true potential of collaboration and technology to transform how financial risk is managed in a digital age.

Is collaborating to comply the way forward?

The use of utilities in financial services is nothing new. For years, firms have outsourced or centralized core operational activities to reduce costs, pool resources and improve efficiencies. Recently, financial institutions have begun to extend the use of shared services models in the risk and compliance management space, motivated by the need to drive down costs, access scarce talent and make better use of technology.

Digital technologies, particularly automation and analytics, hold great potential to increase efficiency and improve the performance of many risk management functions. But digitally driven processes are expensive to implement and require highly skilled specialist staff to establish and run, presenting major challenges to institutions already grappling with financial constraints and talent gaps. This is prompting many to consider how pooling resources via a shared services model could enable greater use of digital technologies in risk areas where large volumes of data and processing are involved.

The regulators’ perspective

Most regulators welcome the prospect of “collaborative compliance” with cautious enthusiasm. While they are wary of risks – particularly their lack of direct oversight of many service providers and the repercussions of flawed data in a shared services ecosystem – most embrace the opportunity for shared services models to improve outcomes. They also see potential for these models to enhance competition by making complex compliance capabilities available to smaller market participants.

How can we clear hurdles to adoption?

Adoption of the next wave of compliance-led shared services models in financial risk management and compliance has been slow to accelerate, despite the opportunities that new technology offers to reduce costs and improve operations and outcomes through collaboration.

Financial institutions, service providers and regulators will have to work together if they are to overcome the hurdles holding back shared services models from achieving the reach, scale and sophistication needed to match the operations of both leading-class financial market participants and malicious actors.

Read the full report here.

EY legal contacts:

Philippe Zimmermann

 

Philippe Zimmermann – Global Financial Services Law Leader 

 

 

richard_goold_dsc_2770-copy

 

Richard Goold – Global Law Technology Sector Leader