Few businesses face the sheer number and severity of threats that you confront in the financial industry and banking sector. In fact, a high degree of risk is inherent to the banking business model. Financial institutions must deal with unavoidable threats and vulnerabilities on a continual basis. While it’s impossible to completely eliminate most of these risk factors, banks can be very effective in their efforts to neutralize threats and address the most troublesome vulnerabilities.
The enterprise risk management landscape is constantly evolving and changing. The same is true of the financial sector. This trait leaves many wondering about the future of enterprise risk management in the banking sector. What should we expect in the coming months and years? And how can a bank prepare to meet the challenges that are likely to arise?
The Challenges of Effective Risk Mitigation in the Banking Sector
The banking industry is a prime target for cybercriminals, fraudsters, thieves, scammers, and other bad actors. This means that for banks and other financial institutions, there is never a shortage of threats and risk factors to consider. It’s a dizzyingly dynamic enterprise risk management equation with a distinct whack-a-mole type of atmosphere. New and emerging threats are constantly arising. New vulnerabilities are periodically discovered. And a bank’s risk management strategy must be continually revisited and updated in response to these changes.
To be effective in their risk mitigation efforts, a bank is tasked with hitting a moving target. Combine this with the sheer volume of risk factors and threats and you’re fighting a challenging battle on a continual basis. Unfortunately, this equation isn’t likely to change at any time in the near future, but new technologies are empowering financial institutions, making them more efficient in their risk mitigation efforts. More and more banks are turning to risk mitigation software platforms which are outfitted with tools, dashboards, and feature sets that allow an organization to make the most of their limited resources.
Enterprise Risk Management and Legal / Regulatory Compliance in Banks
Enterprise risk management is made even more complex by the highly regulated nature of the banking industry. There are dozens of laws that dictate how banks must conduct business and a violation of these laws can carry devastating consequences that include jail time. The banking sector is also subject to oversight by countless regulatory organizations. These regulating bodies have the power to hand down serious sanctions, fines, and penalties, with monetary fines totaling hundreds of millions of dollars in some cases.
Many regulatory groups also require the submission of annual reports and audits in an attempt to improve transparency and accountability within the financial space. This is a trend that we can expect to continue as the demand for transparency increases, but this also represents an area of concern for risk management. Regulatory non-compliance can represent a very serious risk management issue because you have the potential for serious financial losses, reputation damage, and legal troubles. Therefore, a greater regulatory burden translates into a significant risk factor that banks will need to address in the coming months.
Recent years have seen a major rise in the sheer number of laws and regulatory bodies that are overseeing and impacting the financial sector. This is, in large part, due to the slew of bank collapses that we saw in the early 2000s — an era that was marred by a lack of accountability in the financial sector. Numerous regulatory bodies and laws were established on the heels of those bank collapses, including the 2002 Sarbanes-Oxley Act — better known as SOX — which is one the few corporate regulatory burdens that can lead to jail time.
The focus on transparency, honesty, and accountability continues to grow, so most believe that the financial space will continue to move along this same trajectory well into the future of enterprise risk management. We can expect to see continued emphasis on accurate reporting, auditing, and record keeping. These tasks are becoming more and more important because they are critical for achieving and maintaining regulatory compliance. This has led to an increased reliance upon software solutions that allow for report generation and auditing, with many turning to custom enterprise software solutions in an attempt to avoid non-compliance.
The Future of Enterprise Risk Management Technology
Recent years have seen a sharp rise in the emergence of cybercrime and other high-tech threats. This certainly makes sense when you consider how technology in general seems to advance at an exponential rate. What’s more, technology is becoming more and more ingrained in all aspects of everyday life, from the ways in which we communicate, travel, eat, shop, and do business. As a result, we’re seeing more areas of vulnerability, new threats, and a more complex risk mitigation landscape.
While many businesses are quick to adopt the latest, greatest tech innovations, banks, and other companies in the financial space tend to take a more conservative stance when it comes to adopting new technologies. And that’s for good reason because vulnerabilities and risk factors are not always immediately apparent. It can take time for a security threat to emerge, so many financial institutions are keen to hold back until a new technology is thoroughly vetted and proven.
This is a trend that probably won’t change any time soon, but it also means that banks and other companies within the financial space will be at a slight disadvantage if they’re failing to make use of potentially transformative technologies. But an increasing number of banks are forging new relationships with trusted digital transformation development partners who can guide them toward today’s emerging technologies while minimizing risks. These relationships are different from the traditional service provider and customer dynamic; it’s a relationship that’s more accurately described as a collaborative partnership. When you have a trusted and experienced development partner who understands the financial industry’s unique risk management landscape, you can deploy new technologies with confidence knowing that the most serious risk factors, threats, and vulnerabilities have been thoroughly addressed. These partnerships can be very advantageous; your bank will gain a competitive edge as an early adopter. Your financial institution will have the ability to leverage new, emerging technologies right out of the gate — technology that other banks may be hesitant to adopt because there is a fear of the unproven and the unknown.
Putting Risk Management Software to Work for Your Bank
In the financial sector, risk management is a high-stakes endeavor. The dynamic, ever-evolving nature of the banking space makes risk mitigation extremely challenging and complex. But the right technology can go a long way toward streamlining and simplifying a financial institution’s risk mitigation efforts.
At iTech, we specialize in the development of high-tech solutions that leverage today’s best technologies. With the right enterprise risk management software solution, you’ll have the ability to centralize your risk mitigation efforts, with the data, dashboards, and tools you need to succeed. The iTech team will work with you, our client, to gain a full understanding of your business, your risk mitigation strategy, your objectives, and your risk management efforts. Then, we’ll develop an innovative solution that will help you make the most of your available resources. Contact the iTech team today to begin a dialogue on your financial institution’s risk management strategy and how our technology can elevate your risk mitigation efforts to the next level.