Other parts of this series:
In the first blog of this series we looked at some top-line findings from the Accenture 2019 Global Risk Management Study and their implications for financial services firms. As we noted, the past decade has seen financial services firms deal with many waves of complex new regulation resulting from the financial crisis.
Traditional financial and operational risks still challenge these firms, but new threats have grown significantly in importance in the past two years. As an example, these firms have had to confront increasingly sophisticated fraud and financial crime and grapple with the threat of cyber-attacks. And despite becoming more tech savvy, some 58 percent of the financial services risk managers we surveyed said disruptive technology risk has a greater impact on their business today than it did two years ago. Also, in our increasingly connected digital world, risks associated with data breaches have seen the second-biggest increase in perceived impact: Fifty-five percent of respondents said they have a greater impact today than they did two years ago.
As these responses indicate, technology-related risks are evolving more quickly than the technology skills of the risk managers we surveyed. Not surprisingly, when respondents are asked which skills they should urgently strengthen, assessing and applying disruptive technology tops their list.
The growing shadow cast by disruptive technology risk has caused financial firms to discuss it much more frequently with investors and analysts. As part of the study, we analyzed 225 financial services earnings calls and investor conferences and found disruptive technology was the third most frequently discussed risk in 2018. Two years earlier, it was only the sixth most often discussed risk category.
New risks are highly complex
The challenge with these new risks: They are also highly complex and associated with other risks. Nearly three-quarters (72 percent) of surveyed financial services risk managers said that complex, interconnected new risks are emerging at a more rapid pace than ever before.
Take, for example, a data breach. It might be the result of a cyber-attack but could also have data privacy and regulatory implications. The risks involved no longer fit into discrete functional areas such as credit risk, financial risk or operational risk, so risk management needs to evolve its thinking and approach, to be embedded in the organization and interconnected throughout functions and business operations.
Like data breaches, many of the risks financial services firms face today do not fit into neatly defined categories and are evolving more rapidly. As a result, they affect multiple parts of businesses in multiple and sometimes surprising ways.
Of 18 sectors analyzed, insurance, banking and capital markets are most susceptible to future disruption.
Look at non-traditional competitors: They are appearing at an increasing rate and use digital capabilities to gain market share much more quickly than they once did. Similarly, malicious and emboldened actors find new ways to launch cyber-attacks. Businesses, meanwhile, can inadvertently expose themselves to unintended consequences when they scale up flexible and powerful new technologies such as artificial intelligence, machine learning and blockchain before the potential vulnerabilities presented by these technologies are fully understood. Technological progress should be embraced, but it is important to be aware of associated risks and build in the ability to assess business impacts and prepare appropriate mitigation and back-up measures. Risk management is about preparation.
This pace of change should not abate any time soon. Accenture’s Breaking Through Disruption study found that, of 18 sectors analyzed, insurance, banking and capital markets are most susceptible to future disruption.
Strong risk disciplines are more critical than ever in an increasingly volatile and digital world. In the next blog in this series, we will look at how organizations can respond with confidence to new digital threats.
For more risk management insights, click here to download the 2019 Global Risk Management Study report.