What’s next for risk management?


Which topics and priorities will be the focus for chief risk officers in 2019?

A range of experts and representatives of major banking institutions addressed these questions at a recent event, CRO and CFO Banking Agenda 2019, organised by CeTIF, the Research Center on Technologies, Innovation and Financial Services, in collaboration with SAS.

There was no shortage of candidates for key topics for 2019. Risk officers in banks and financial institutions have a number of things on their plates: joint development of the risk and finance roles, risk analytics, digital transformation of credit processes, machine learning, stress testing and the integrated balance sheet, nonperforming loans, data quality, regulatory reporting, risk transformation, fintech and cyber-risk.

This is already a long list of demanding themes. But by no means does it include all of the main challenges for this year, both regulatory and nonregulatory. This year is likely to have a very peculiar economic background, perhaps one of the most difficult to manage for the risk management group of any financial institution. There is high volatility. We are already seeing low profits. And the combination is exacerbated by a strong regulatory push. 

However, Mario Anolli, Professor of Economy of Financial Intermediaries at Università Cattolica del Sacro Cuore, believes that risk management teams are ready to face this kind of pressure. He has several reasons for his view. First, banks have a high level of awareness, which is a fundamental prerequisite for any transformation and evolution process. Second, thanks to the regulatory authorities’ compliance recommendation, institutions are required to update and modernise on an ongoing basis.

Banks must transform to survive

The digital transformation is still a work in progress in banks and other financial institutions. However, Anselmo Marmonti, Senior Director of the SAS EMEA Risk and Finance Practice, thinks that transformation is inevitable if banks are to survive in the digital era.

The adoption of innovative technologies and platforms that use and integrate advanced analytics techniques is essential. This will allow banks to reduce their maintenance costs and the impact on the total cost of ownership. It will also improve performance and allow users to interact with complex analysis tools in a simpler and more intuitive way.

Stress testing and integrated balance sheet

There is another benefit to using an analytics platform. Stress test exercises are becoming increasingly important in risk management. However, CROs need to work hard to comply with all the relevant regulations. A structured, efficient and user-friendly platform can help to minimise the effort required. The use of a platform means that both risk and finance users can autonomously execute complex simulation analysis for purposes beyond regulatory compliance. For example, they might explore the real-time impact on the balance sheet of particular activities. This will add significant value to previous investments made for regulatory purposes.

Advanced analytics and artificial intelligence (AI)

Banks are also investing in the application of new machine learning and advanced analytics techniques, mainly to support the digital transformation of credit processes. Conversations with banking authorities remain difficult, but the integration with these kinds of models and methodologies is fundamentally important. The areas of application include credit model estimation, calibration and benchmarking; automation of complex processes; and enhancement of data quality techniques.

Recently, the Global Association of Risk Professionals and SAS conducted an online survey, The Role of Artificial Intelligence in Risk Management. The survey received more than 2,000 responses from risk professionals across the financial services industry. One key takeaway is that four out of five respondents (81 percent) said they have already seen benefits from AI technologies in their business. Based on this evidence, we can expect to see plenty of other banks following this route over the next few years.


About Author

Giada Scalpelli

Curiosity has always been a driver in Giada's life and, therefore, throughout her whole academic and professional path. Curiosity leads us to create new opportunities, learn innovative concepts, face stimulating challenges, and, ultimately, grow professionally. Giada is part of the Customer Advisory Risk Management team at SAS Italy. In this role, she helps clients to deal with the many challenges of Credit Risk topics as IFRS9, Stress Testing and Regulatory Capital. Before joining SAS and after a long period abroad, during which she studied at Universiteit Leiden and at CWI, the national research center for Mathematics and Informatics in the Netherlands, she graduated in Mathematics at Università degli Studi di Padova with full marks.

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