Certain facets of business if brought together effectively and managed well, can create an environment of strategic advantage.
- The fast evolving field of technology, and
- Risk management and compliance.
The evolution of banking:
Looking back at banking in the 1980’s, banks were focused primarily on taking deposits and making loans that were delivered via a branch emphasising face to face contact with customers. These customers were relatively unsophisticated and trusted their bankers to act in their best interest.
With dramatic advancements in technology, banking customers became increasingly sophisticated, demanding an ever increasing variety of products.
In response, traditional banking services have evolved to include diverse offerings such as stock trading, mutual funds, credit cards, mortgages, investment advice, financial news, payment services and even the ability to purchase online your cellphone airtime or Lotto tickets.
These changes brought about by new products, more sophisticated customers, changing cost structures, and enhanced competitive pressures have all combined to transform the structure and risk profile of the banking industry.
The recent financial market crisis resulted in the global economic meltdown of 2008-2009. Following the crisis banks have been thrust into an ever-intensifying regulatory environment and face a whole host of new compliance requirements pertaining to risk management.
A seemingly endless string of new regulatory guidelines means the compliance baselines a bank must meet are a moving target.
Risk management and compliance:
The challenge faced by risk management and compliance is to keep pace with the evolutionary change in the nature of banking business. One way to achieve this is to leverage upon the strengths inherent in technology, such as adaptability.
Change introduced through new regulations creates opportunity if a bank can adapt quickly enough and implement controls to manage the requirements ahead of their competitors. Technology if used wisely can help banks to meet its compliance requirements with added side effects such as the introduction of greater efficiencies. However, with so many of the new regulations still lacking clarity and due to cross jurisdictional differences in the implementation of the new requirements, many banks have been cautious about investing in systems intended to ensure compliance.
Not withstanding these challenges, an increasingly important area for risk management and compliance is real-time data monitoring and retention. This will become key to meeting the new and varied compliance standards regardless of the extent of their implementation in different jurisdictions.
Risk management and compliance has therefore become a question of, ‘Can you demonstrate that you know X?’, whether X is your exposure to counterparty risk, liquidity risk, your capital adequacy ratio or whatever it might be. You have to measure your exposure in real-time, and technology is suitably positioned to play a crucial role in achieving high risk management compliance standards.
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