- The banking sector needs to strengthen its risk management capabilities.
- Technological innovations are transforming the banking sector rapidly.
- Current risk management capabilities might not be effective.
Risk management is critical to the banking sector as it ensures financial stability, continuity, and viability. However, digitalization and cloud banking have exposed banks to emerging risk, with 70% of senior banking risk professionals calling for urgent enhanced risk management capabilities, according to BanklessTimes.com.
Jonathan Merry, BanklessTimes CEO, commented:
Banking institutions need to strengthen their risk management capabilities in this digital era. These risks encompass a wide spectrum, including regulatory compliance, cybersecurity threats, market volatility, operational disruptions, and emerging risks such as geopolitical instability.
Technology; Blessing or a Curse?
Banks face several risks, including credit and market risks, cyber-related risks, and compliance risks. The financial crisis of 2008 served as a stark reminder that conventional risk management approaches were insufficient. Consequently, there was a surge in demand for sophisticated risk management frameworks from a broader spectrum of stakeholders.
Currently, more than two-thirds of senior banking risk professionals are concerned about the effectiveness of their risk management. These concerns indicate the shortcomings of the current methods, particularly in addressing emerging risks caused by technological growth and geopolitical instability.
Technology is not only growing and evolving rapidly, but it has also introduced new vulnerabilities to the banking sector. Digital channels, AI, and blockchain technology have reformed the banking ecosystem and increased banks' exposure to cyber threats and operational disruptions.
Need for Enhanced Risk Management Capabilities
Advanced analytics, machine learning, and predictive modelling are needed to improve risk identification and mitigation. Although technology poses a risk, it offers the best security from threats, and banks should take advantage of that.
Additionally, banks should invest in talent development and essential training programs to ensure staff can identify and control risks from the onset. Effective risk management goes beyond technology as it needs the expert judgment of skilled workers who can read and interpret data and anticipate potential hazards.
Embracing technological innovation while fortifying risk management strategies is imperative for banks to safeguard stability, continuity, and viability in an increasingly uncertain environment.
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