Fintech, regtech and the role of compliance in 2020

Publié le par hanswillertbleuazurconsultingeu

The ebb and flow of attitudes on the adoption and use of technology has evolving ramifications for financial services firms and their compliance functions, according to the findings of the Thomson Reuters Regulatory Intelligence’s fourth annual survey on fintech, regtech and the role of compliance. This year’s survey results represent the views and experiences of almost 400 compliance and risk practitioners worldwide.

During the lifetime of the report it has had nearly 2,000 responses and been downloaded nearly 10,000 times by firms, risk and compliance practitioners, regulators, consultancies, law firms and global systemically-important financial institutions (G-SIFIs). The report also highlights the shifting role of the regulator and concerns about best or better practice approaches to tackle the rise of cyber risk. The findings have become a trusted source of insight for firms, regulators and their advisers alike. They are intended to help regulated firms with planning, resourcing and direction, and to allow them to benchmark whether their resources, skills, strategy and expectations are in line with those of the wider industry. As with previous reports, regional and G-SIFI results are split out where they highlight any particular trend. One challenge for firms is the need to acquire the skill sets which are essential if they are to reap the expected benefits of technological solutions. Equally, regulators and policymakers need to have the appropriate up-todate skillsets to enable consistent oversight of the use of technology in financial services. Firms themselves, and G-SIFIs in particular, have made substantial investments in skills and the upgrading of legacy systems.

Key findings

  • The involvement of risk and compliance functions in their firm’s approach to fintech, regtech and insurtech continues to evolve. Some 65% of firms reported their risk and compliance function was either fully engaged and consulted or had some involvement (59% in prior year). In the G-SIFI population 69% reported at least some involvement with those reporting their compliance function as being fully engaged and consulted almost doubling from 13% in 2018, to 25% in 2019. There is an even more positive picture presented on increasing board involvement in the firm’s approach to fintech, regtech and insurtech. A total of 62% of firms reported their board being fully engaged and consulted or having some involvement, up from 54% in the prior year. For G-SIFIs 85% reported their board being fully engaged and consulted or having some involvement, up from 56% in the prior year. In particular, 37% of G-SIFIs reported their board was fully engaged with and consulted on the firm’s approach to fintech, regtech and insurtech, up from 13% in the prior year.
  • Opinion on technological innovation and digital disruption has fluctuated in the past couple of years. Overall, the level of positivity about fintech innovation and digital disruption has increased, after a slight dip in 2018. In 2019, 83% of firms have a positive view of fintech innovation (23% extremely positive, 60% mostly positive), compared with 74% in 2018 and 83% in 2017. In the G-SIFI population the positivity rises to 92%. There are regional variations, with the UK and Europe reporting a 97% positive view at one end going down to a 75% positive view in the United States.
  • There has been a similar ebb and flow of opinion about regtech innovation and digital disruption although at lower levels. A total of 77% reported either an extremely or mostly positive view, up from 71% in the prior year. For G-SIFIs 81% had a positive view, up from 76% in the prior year.
  • G-SIFIs have reported a significant investment in specialist skills for both risk and compliance functions and at board level. Some 21% of G-SIFIs reported they had invested in and/or appointed people with specialist skills to the board to accommodate developments in fintech, insurtech and regtech, up from 2% in the prior year. This means in turn 79% of G-SIFIs have not completed their work in this area, which is potentially disturbing. Similarly, 25% of G-SIFIs have invested in specialist skills for the risk and compliance functions, up from 9% in the prior year. In the wider population 10% reported investing in specialist skills at board level and 16% reported investing in specialist skills for the risk and compliance function. A quarter (26%) reported they have yet to invest in specialist skills for the risk and compliance function, but they know it is needed (32% for board-level specialist skills). Again, these figures suggest 75% of G-SIFIs have not fully upgraded their risk and compliance functions, rising to 84% in the wider population.
  • The greatest financial technology challenge firms expect to face in the next 12 months have changed in nature since the previous survey, with the top three challenges cited as keeping up with technological advancements; budgetary limitations, lack of investment and cost; and data security. In prior years, the biggest challenges related to the need to upgrade legacy systems and processes as well as budgetary limitations, the adequacy and availability of skilled resources together with the need for cyber resilience. In terms of the greatest benefits expected to be seen from financial technology in the next 12 months the top three are a strengthening of operational efficiency, improved services for customers and greater business opportunities.
  • G-SIFIs are leading the way on the implementation of regtech solutions. Some 14% of G-SIFIs have implemented a regtech solution, up from 9% in the prior year with 75% (52% in the prior year) reporting they have either fully or partially implemented a regtech solution to help manage compliance. In the wider population, 17% reported implementing a regtech solution, up from 8% in the prior year. The 2018 numbers overall showed a profound dip from 2017 when 29% of G-SIFIs and 30% of firms reported implementing a regtech solution, perhaps highlighting that early adoption of regtech solutions was less than smooth.
  • Where firms have not yet deployed fintech or regtech solutions various reasons were cited as to what was holding them back. Significantly, one third of firms cited lack of investment; a similar number of firms pointed to a lack of in-house skills and information security/data protection concerns. Some 14% of  firms and 12% of G-SIFIs reported they had taken a deliberate strategic decision not to deploy fintech or regtech solutions yet.
  • There continues to be substantial variation in the overall budget available for regtech solutions. A total of 38% of firms (31% in prior year) reported that the expected budget would grow in the coming year, however, 31% said they lack a budget for regtech (25% in the prior year). For G-SIFIs 48% expected the budget to grow (36% in prior year), with 12% reporting no budget for regtech solutions (6% in the prior year).

Focus : Challenges for firms

Technological challenges for firms come in all shapes and sizes. There is the potential, marketplace changing, challenge posed by the rise of bigtech. There is also the evolving approach of regulators and the need to invest in specialist skill sets. Lastly, there is the emerging need to keep up with technological advances themselves.

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The challenges for firms have moved on. In the first three years of the report the biggest financial technology challenge facing firms was that of the need to upgrade legacy systems and processes. This year the top three challenges are expected to be the need to keep up with technology advancements; perceived budgetary limitations, lack of investment and cost, and then data security.

Focus : Cyber risk

Cyber risk and the need to be cyber-resilient is a major challenge for financial services firms which are targets for hackers. They must be prepared and be able to respond to any kind of cyber incident. Good customer outcomes will be under threat if cyber resilience fails.

One of the most prevalent forms of cyber attack is ransomware. There are different types of ransomware, all of which will seek to prevent a firm or an individual from using their IT systems and will ask for something (usually payment of a ransom) to be done before access will be restored. Even then, there is no guarantee that paying the fine or acceding to the ransomware attacker’s demands will restore full access to all IT systems, data or files. Many firms have found that critical files often containing client data have been encrypted as part of an attack and large amounts of money are demanded for restoration. Encryption is in this instance used as a weapon and it can be practically impossible to reverse-engineer the encryption or “crack” the files without the original encryption key – which cyber attackers deliberately withhold. What was previously viewed often as an IT problem has become a significant issue for risk and compliance functions. The regulatory stance is typified by the UK Financial Conduct Authority (FCA) which has said its goal is to “help firms become more resilient to cyber attacks, while ensuring that consumers are protected and market integrity is upheld”. Regulators do not expect firms to be impervious but do expect cyber risk management to become a core competency.

Good and better practice on defending against ransomware attacks Risk and compliance officers do not need to become technological experts overnight but must ensure cyber risks are effectively managed and reported on within their firm’s corporate governance framework. For some compliance officers, cyber risk may be well outside their comfort zone but there is evidence that simple steps implemented rigorously can go a long way towards protecting a firm and its customers. Any basic cyber-security hygiene aimed at protecting businesses from ransomware attacks should make full use of the wide range of resources available on cyber resilience, IT security and protecting against malware attacks. The UK National Cyber Security Centre has produced some practical guidance on how organizations can protect themselves in cyberspace, which it updates regularly. Indeed, the NCSC’s 10 steps to cyber security have now been adopted by most of the FTSE350.

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Closing thoughts

The financial services industry has much to gain from the effective implementation of fintech, regtech and insurtech but practical reality is there are numerous challenges to overcome before the potential benefits can be realised. Investment continues to be needed in skill sets, systems upgrades and cyber resilience before firms can deliver technological innovation without endangering good customer outcomes.

An added complication is the business need to innovate while looking over one shoulder at the threat posed by bigtech. There are also concerns for solution providers. The last year has seen many technology start-ups going bust and far fewer new start-ups getting off the ground – an apparent parallel, at least on the surface, to the bubble that was around dotcom. Solutions need to be practical, providers need to be careful not to over promise and under deliver and above all developments should be aimed at genuine problems and not be solutions looking for a problem. There are nevertheless potentially substantive benefits to be gained from implementing fintech, regtech and insurtech solutions. For risk and compliance functions much of the benefit may come from the ability to automate rote processes with increasing accuracy and speed. Indeed, when 900 respondents to the 10th annual cost of compliance survey report were asked to look into their crystal balls and predict the biggest change for compliance in the next 10 years, the largest response was automation.

Technology and its failure or misuse is increasingly being linked to the personal liability and accountability of senior managers. Chief executives, board members and other senior individuals will be held accountable for failures in technology and should therefore ensure their skill set is up-to-date. Regulators and politicians alike have shown themselves to be increasingly intolerant of senior managers who fail to take the expected reasonable steps with regards to any lack of resilience in their firm’s technology.

This year’s findings suggest firms may find it beneficial to consider:

  • Is fintech (and regtech) properly considered as part of the firm’s strategy? It is important for regtech especially not to be forgotten about in strategic terms: a systemic failure arising from a regtech solution has great capacity to cause problems for the firm – the UK FCA’s actions on regulatory reporting, among other things, are an indicator of this.
  • Not all firms seem to have fully tackled the governance challenge fintech implies: greater specialist skills may be needed at board level and in risk and compliance functions.
  • Lack of in-house skills was given as a main reason for failing to develop fintech or regtech solutions. It is heartening that firms understand the need for those skills. As fintech/regtech becomes mainstream, however, firms may be pressed into developing such solutions. Is there a plan in place to plug the skills gap?
  • Only 22% of firms reported that they need more resources to evaluate, understand and deploy fintech/ regtech solutions. This suggests 78% of firms are unduly relaxed about the resources needed in the second line of defence to ensure fintech/regtech solutions are properly monitored. This may be a correct conclusion, but seems potentially bullish.

Click here to access Thomson Reuters’ Survey Results

The Global Risks Landscape 2019

Publié le par hanswillertbleuazurconsultingeu

Is the world sleepwalking into a crisis? Global risks are intensifying but the collective will to tackle them appears to be lacking. Instead, divisions are hardening. The world’s move into a new phase of strongly state-centred politics, noted in last year’s Global Risks Report, continued throughout 2018. The idea of “taking back control”— whether domestically from political rivals or externally from multilateral or supranational organizations — resonates across many countries and many issues. The energy now expended on consolidating or recovering national control risks weakening collective responses to emerging global challenges. We are drifting deeper into global problems from which we will struggle to extricate ourselves.

During 2018, macroeconomic risks moved into sharper focus. Financial market volatility increased and the headwinds facing the global economy intensified. The rate of global growth appears to have peaked: the latest International Monetary Fund (IMF) forecasts point to a gradual slowdown over the next few years. This is mainly the result of developments in advanced economies, but projections of a slowdown in China—from 6.6% growth in 2018 to 6.2% this year and 5.8% by 2022—are a source of concern. So too is the global debt burden, which is significantly higher than before the global financial crisis, at around 225% of GDP. In addition, a tightening of global financial conditions has placed particular strain on countries that built up dollar-denominated liabilities while interest rates were low.

Geopolitical and geo-economic tensions are rising among the world’s major powers. These tensions represent the most urgent global risks at present. The world is evolving into a period of divergence following a period of globalization that profoundly altered the global political economy. Reconfiguring the relations of deeply integrated countries is fraught with potential risks, and trade and investment relations among many of the world’s powers were difficult during 2018.

Against this backdrop, it is likely to become more difficult to make collective progress on other global challenges—from protecting the environment to responding to the ethical challenges of the Fourth Industrial Revolution. Deepening fissures in the international system suggest that systemic risks may be building. If another global crisis were to hit, would the necessary levels of cooperation and support be forthcoming? Probably, but the tension between the globalization of the world economy and the growing nationalism of world politics is a deepening risk.

Environmental risks continue to dominate the results of our annual Global Risks Perception Survey (GRPS). This year, they accounted for three of the top five risks by likelihood and four by impact. Extreme weather was the risk of greatest concern, but our survey respondents are increasingly worried about environmental policy failure: having fallen in the rankings after Paris, “failure of climate-change mitigation and adaptation” jumped back to number two in terms of impact this year. The results of climate inaction are becoming increasingly clear. The accelerating pace of biodiversity loss is a particular concern. Species abundance is down by 60% since 1970. In the human food chain, biodiversity loss is affecting health and socioeconomic development, with implications for well-being, productivity, and even regional security.

Technology continues to play a profound role in shaping the global risks landscape. Concerns about data fraud and cyber-attacks were prominent again in the GRPS, which also highlighted a number of other technological vulnerabilities: around two-thirds of respondents expect the risks associated with fake news and identity theft to increase in 2019, while three-fifths said the same about loss of privacy to companies and governments. There were further massive data breaches in 2018, new hardware weaknesses were revealed, and research pointed to the potential uses of artificial intelligence to engineer more potent cyberattacks. Last year also provided further evidence that cyber-attacks pose risks to critical infrastructure, prompting countries to strengthen their screening of cross-border partnerships on national grounds.

The importance of the various structural changes that are under way should not distract us from the human side of global risks. For many people, this is an increasingly anxious, unhappy and lonely world. Worldwide, mental health problems now affect an estimated 700 million people. Complex transformations— societal, technological and work-related—are having a profound impact on people’s lived experiences. A common theme is psychological stress related to a feeling of lack of control in the face of uncertainty. These issues deserve more attention: declining psychological and emotional wellbeing is a risk in itself—and one that also affects the wider global risks landscape, notably via impacts on social cohesion and politics.

Another set of risks being amplified by global transformations relate to biological pathogens. Changes in how we live have increased the risk of a devastating outbreak occurring naturally, and emerging technologies are making it increasingly easy for new biological threats to be manufactured and released either deliberately or by accident. The world is badly under-prepared for even modest biological threats, leaving us vulnerable to potentially huge impacts on individual lives, societal well-being, economic activity and national security. Revolutionary new biotechnologies promise miraculous advances, but also create daunting challenges of oversight and control—as demonstrated by claims in 2018 that the world’s first genemodified babies had been created.

Rapidly growing cities and ongoing effects of climate change are making more people vulnerable to rising sea levels. Two-thirds of the global population is expected to live in cities by 2050 and already an estimated 800 million people live in more than 570 coastal cities vulnerable to a sea-level rise of 0.5 metres by 2050. In a vicious circle, urbanization not only concentrates people and property in areas of potential damage and disruption, it also exacerbates those risks— for example by destroying natural sources of resilience such as coastal mangroves and increasing the strain on groundwater reserves. Intensifying impacts will render an increasing amount of land uninhabitable. There are three main strategies for adapting to rising sea-levels:

  1. engineering projects to keep water out,
  2. naturebased defences,
  3. and peoplebased strategies, such as moving households and businesses to safer ground or investing in social capital

to make flood-risk communities more resilient.

In this year’s Future Shocks section, we focus again on the potential for threshold effects that could trigger dramatic deteriorations and cause cascading risks to crystallize with dizzying speed. Each of the 10 shocks we present is a “what-if” scenario—not a prediction, but a reminder of the need to think creatively about risk and to expect the unexpected. Among the topics covered this year are

  • quantum cryptography,
  • monetary populism,
  • affective computing
  • and the death of human rights.

In the Risk Reassessment section, experts share their insights about how to manage risks. John Graham writes about weighing the trade-offs between different risks, and András Tilcsik and Chris Clearfield write about how managers can minimize the risk of systemic failures in their organizations.

And in the Hindsight section, we revisit three of the topics covered in previous reports:

  • food security,
  • civil society
  • and infrastructure investment.

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click here to access wef-mmc-zurich’s global risks report 2019

 

Accelerated evolution – M&A, transformation and innovation in the insurance industry

Publié le par hanswillertbleuazurconsultingeu

Strong appetite for deal activity

Today’s insurers know that maintaining the ‘status quo’ is not a recipe for sustainable growth. They feel the pressure of disruption in the market from

  • new competitors,
  • new technologies,
  • new customer demands
  • and new sources of capital.

They feel the pain of

  • continued low interest rates,
  • volatility in underwriting losses
  • and pressure on profitability,

as investment portfolio yields continue to decline.

Organic growth has been challenging across most of the mature insurance markets. Consider this: Since the start of this decade to 2016, global gross domestic product (GDP) increased by more than 20 percent. Yet the global premium market grew by just 9 percent over the same period. Insurers recognize that things must change if they want to maintain or grow their market share.

“In an era of anticipated disruption of legacy business and operating models, global insurance executives realize that their strategy cannot be about pursuing growth for growth’s sake. When it comes to growth strategy, more of the same is not necessarily the best answer. What may have been a core business in the past may not be in the future,” notes Ram Menon, KPMG’s Global Insurance Deal Advisory Leader.

Today’s insurance leaders are taking a more strategic view of the value of M&A. According to a recent global survey of 115 insurance CEOs conducted by KPMG International, more than 60 percent of insurers now see disruption as more of an opportunity for growth than a threat. And they are using their capital and their M&A capabilities to maximize those opportunities — often by strategically deploying capital towards emerging technology as a competitive advantage to

  • engage customers,
  • generate cash flows
  • and enhance enterprise value.

The good news is that — for the most part — capital and surplus levels are at record highs across life, non-life and reinsurance markets. And most insurers plan to tap into that capital to make deals. In fact, our survey suggests that close to three-quarters of insurers expect to conduct an acquisition and two-thirds expect to seek partnership opportunities over the next 3 years. Eighty-one percent say they will conduct up to three acquisitions or partnerships in the same period. More than 70 percent said they are hoping their deals will help transform their organization in some way. As a top priority,

  • 37 percent hope to transform their business models,
  • 24 percent want to transform their operating models,
  • and 10 percent are looking to acquire new innovation capabilities and emerging technologies

through their acquisitions.

“Insurers increasingly recognize their days of operating business-as-usual numbered. And it’s not small changes market going to be undoing — big ones,” says Thomas Gross with KPMG Germany. Auto insurers, for example, looking at rapid adoption of mobility models and wondering how they add value when car manufacturers or leasers own relationship customer.”

On their path to transformation, insurance companies expect to strategically deploy capital against a range of specific inorganic growth opportunities:

  • transforming their business models for sustainable growth;
  • modernizing their operating models for profitable growth;
  • enhancing customer engagement;
  • and gaining access to innovation and emerging technologies.

“The top factor that will drive insurance acquisitions will be the need for emerging technologies. Insurance companies are all looking at how to put their operations on digital platforms in order to save time and resources both for the company and the customers,” notes the Head of Finance at a China-based property and casualty (P&C) insurer. At the same time, a significant number of insurers also hope to rebalance their portfolio of businesses. Many plan to evaluate whether they should fix or exit businesses that are struggling to achieve returns in excess of their longterm capital rates. This should allow them to remain focused on transforming businesses they consider core for the future while freeing up additional capital for reinvestment into new lines of business and technology capabilities.

As the director of finance at a UK-based non-life insurer notes, “Units that are consistently performing poorly will be segregated to further analyze their positions and whether or not they still fit in the company’s planned structure. We discourage force-fitting any product or company unless it has great potential for generating revenue. If it does not, we look for suitable buyers for the business.”

Our data indicates, insurance executives expect to exit non-core businesses, enter new markets and gain access to new technology infrastructure and operating capabilities via M&A and partnerships, as a way to further diversify their global risks and earnings profile.

Looking beyond the borders

Our survey suggests that the majority of insurers will be involved in some sort of non-domestic deal: 68 percent say they expect to conduct a cross-border acquisition, partnership or divestiture over the next 3 years. Just 32 percent say their top priority will be on domestic activity.

“Over a period of 3 years, we expect to see a lot of M&A transactions overseas. We are looking to expand into regions that are new for us and with acquisitions, you can get going without having to set up a base from scratch or encounter a lot of unforeseen risks,” notes the senior VP for M&A at a global insurance brokerage firm. Perhaps not surprisingly, our data suggests that insurers expect to see the most activity in North America — the US in particular. Given that the US is still the largest insurance market in the world with around 30 percent of the global premium market share, many insurers see the US as a source of steady market growth and relative premium stability.

“The volume of M&A in North America will increase the most in the coming years. With the new tax reforms, insurance companies will pay lower taxes — these new regulations will provide insurers opportunities to grow. Companies from other markets will also want to take advantage of the lower tax rate and will look for ways to expand into the US market,” suggested the CFO at a Bermuda-based reinsurer. Changes to US tax laws will certainly create significant disruption and opportunity for insurers both onshore and offshore. “The reduction in the corporate tax rate to 21 percent makes US assets much more compelling,” notes Philip Jacobs, leader of the Insurance Tax practice with KPMG in the US. “The lower US tax rate has also eliminated some of the offshore tax advantage; the large Bermuda players may still be operating with relatively low effective rates, but the tax differential between operating in the US versus Bermuda has narrowed.”

Latin America, however, expects relatively lower levels of deal activity. “It’s a sellers’ market in Latin America,” notes David Bunce, Senior Client Partner with KPMG in Brazil. “Lots of international insurers want to get into certain Latin American markets, but nobody is really ready to sell.”

At the other end of the spectrum — and the other side of the world — Asia-Pacific is widely viewed as a region of massive growth potential and innovation. China has already become the world’s second largest insurance market (with around 10 percent of
global premium market share) and premiums have more than doubled since 2010. Singapore and Hong Kong have long been key centers of insurance innovation growth.

Asia-Pacific was identified as the geographic region where insurers would most likely seek partnership opportunities. “As insurers seek to expand outside of their traditional distribution networks in Asia, digital partnerships are emerging as a fairly quick way to tap into new customer segments without significant upfront capital investment,” adds Joan Wong with KPMG China. “A digital partnership could unlock significant new growth, which would tip the balance for those making a ‘go or grow’ decision about their businesses.”

The director of investment at a Korea-based international insurer agrees. “Asia has become one of the biggest markets for insurers, and the region’s growing population along with changes in capital regulations will give insurers the backing they need to grow. In China alone we have seen a major increase in the number of companies seeking out new ventures in the insurance sector.”

While the majority of our respondents say they are looking across their borders for growth, those in Asia-Pacific are much more likely to be focused on domestic acquisitions instead. “Most of the markets in Asia are still fairly domestically oriented and there is still significant fragmentation and inefficiency that could be eliminated,” adds Stephen Bates with KPMG in Singapore. “Given the growth potential across the region, it’s not surprising that Asian insurers are thinking about taking advantage of opportunities at home before investing further into foreign markets.”

Somewhat tellingly, insurers expect most of the divestiture activity to originate from Western Europe. As the head of finance and investments at a large French insurer argues, “The persistent compression in global interest rates continues to be a challenge for the insurance industry, and many companies in Europe are aiming to divest in part to cope with this. When you add in the factors of changing regulation and customer demographics, it means that insurance business models have evolved and companies are reshaping themselves accordingly.”

“Insurers in Europe are very interested in diversifying their risk and see adjacent markets as an opportunity to do just that,” notes Giuseppe Rossano Latorre, Head of Corporate Finance at KPMG in Italy. “There are a number of life insurers that are looking at the asset management business, for example, as a potential growth opportunity in the future.”

Our data indicates that in the Life sector, acquisitions will likely focus on finding lower-risk, higher-growth, higher-return assets, particularly around capital-light retirement, investment management and group benefits businesses. However, greater levels of activity should be expected in the Nonlife sector, driven by a growing appetite for more profitable specialty risks and commercial risks, with a preference for commercial risk in the small- and medium-sized enterprise (SME) sector.

What this survey makes clear is that global insurance companies recognize they now have a window of opportunity to strategically allocate their capital across the globe towards achieving and accelerating their transformation strategy.

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Click here to access KPMG’s detailed study

Targeting A Technology Dividend In Risk Management

Publié le par hanswillertbleuazurconsultingeu

Many drivers are shaping the context of risk management today. Macroeconomic headwinds, global geopolitical uncertainty, and ever more frequent and damaging cyber events have been in the vanguard of the challenges leading to heightened risk perceptions.

MACROECONOMIC HEADWINDS

Macroeconomic headwinds driven by global and Asian debt levels, low growth, anti-globalization sentiments, increasing policy uncertainty and the expected hike in US interest rates, all represent significant challenges. As Andrew Glenister, Regional Risk Advisor at BT Hong Kong, notes: “Macroeconomic and geopolitical risks are an increasing part of our internal discussions, particularly across Asia and Africa, and recent surprises on the world’s political scene have demonstrated that nothing can be taken for granted, and that the experts aren’t always right! At the same time our business is facing new challenges from the changing regulatory and global environment and can be impacted by a far greater range and variety of events from across the world.”

These challenges are particularly pronounced for export-dependent economies, which comprise most of Asia. Concurrently, many leading economies in Asia-Pacific such as China, Singapore, and Australia are struggling to maintain labor productivity and productivity growth. Productivity-enhancing policies are required, including capital investments in new technology and workforce development. These new technologypowered productivity strategies will inevitably bring modifications to risk management and the role of the risk function. Risk teams will need to use their established capabilities to anticipate potential implications of this context, and develop new capabilities for managing risks using emerging technologies.

HIDDEN RISKS ARISING FROM NEW TECHNOLOGIES

Global perceptions of risk, as measured in Marsh & McLennan Company’s annual work with the World Economic Forum, are more elevated than ever. Technological advancements, for example, are increasingly exposing organizations to emerging risks such as data fraud and cybersecurity threats. Indeed, the WannaCry and Petya ransomware attacks were a harsh reminder of this for firms across the globe. This point of view is well echoed in our survey, in which 51 percent of respondents state that cybersecurity risk is the second-most impactful risk for their firms, following strategic risk.

In fact, two of the three most pressing global risks identified by risk managers relate to technology and cybersecurity. Moreover, as reflected in the MMC Asia Pacific Risk Center’s annual Evolving Risk Concern in Asia-Pacific report, the interconnectedness of risks – which may not be apparent to businesses – compounds the impacts of risk events. For example, the effects of advancement in automation may lead to rising economic inequality as it threatens to displace manufacturing jobs that have been the main livelihood of millions of lower-income Asians. As Susan Valdez, Senior Vice President and Chief Corporate Services Officer of Aboitiz Equity Ventures (and a PARIMA Philippines board member) points out, “Corporate digital transformation creates a whole new set of risks and could alter the context of cyber risk and information security risk. Because of the evolving nature of threats from hacking, malware, phishing and other forms of attacks, existing mitigations are constantly challenged and need to be continually updated to address vulnerabilities.” The confluence of risks facing Asia-Pacific is posing significant challenges to businesses.

THE EVOLVING REGULATORY LANDSCAPE

A “deluge of regulation” has followed the dramatic events of the Global Financial Crisis, especially in financial service industries. Non-financial service industries also face a rising tide of regulation, motivated by trends such as cybersecurity concerns, rising anti-globalization sentiments and climate change, just to name a few. Asia-Pacific regulators are following international precedent by increasing oversight of multiple areas including stress testing, recovery and resolution planning, as well as in required capital estimation regulation.

An increasing number of Asia-Pacific countries including China, Singapore, and Australia have recently introduced cybersecurity laws to be in line with the global best practice. Moreover, rising protectionism including sudden changes in trade policies, taxes or tariff regulations have been witnessed in other regions, which also create increased pressure on risk management.

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Click here to access Marsh Parima study

Make the right decisions about emerging technologies

Publié le par hanswillertbleuazurconsultingeu

Today’s businesses are innovating across

  • business models,
  • products,
  • services
  • and customer engagement

while disrupting markets and entire industries. Much of this innovation is driven by applying emerging technologies throughout the value chain. It creates great opportunities but at the same time presents significant challenges and unknown risks and consequences to organizations. Competitors can completely disrupt an industry, or an organization can disrupt itself first and lead a new phase of growth.

This pursuit of everything digital is happening at an accelerating pace. Speed has become a huge source of value whether measured by faster decision-making or how quickly an organization can go from ideation to revenue. This need to deploy digital capabilities quickly and at scale is the antithesis of IT-led projects that are typically months or years long and, as a result, often out of frustration, the business is increasingly sidestepping the IT function to procure new technologies. The combination of an increasingly tech-savvy population combined with the proliferation of cloud-based software as a service (SaaS) solutions has greatly simplified this process. In this race to harness emerging technologies and innovate it is easy to forget about governance and that can lead to significant costs and risks.

Understanding when, how, why, and what new technologies are introduced to an organization is critical to both maximize the opportunities that they present and minimize the inherent risks.

Establishing a governance framework that embraces disruptive technologies and encourages innovation while ensuring risks are identified and managed is essential to an organization’s ability to survive and thrive in a digital world. Innovation / Emerging Technology Councils comprised of the right mix of internal and third party experts can ensure that the right approach is taken, investment is available and prioritized, and opportunities can be scaled.

The unique characteristics of emerging technologies –

  • their diverse applications,
  • the myriad concerns raised by some new capabilities,
  • the need for public engagement,
  • and the challenge of effective coordination between governance players

– create the need for a new governance approach and a new lens through which to view risk management.

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Click here to access KPMG’s detailed article