What does risk management entail in the corporate world? In general, an ERM framework is used by a business to reduce and manage risk across the whole supply chain. A risk management process is made up of three parts: the people who handle interruptions, rules or procedures, and risk management instruments. To sum it up, a business appoints a team to apply a set of risk management best practices and technology. 

Creating and implementing an ERM program is a mystery to the majority of businesses. The problem is that they don't know what risks to reduce or how to integrate management programs into their organization. 

Creating the Right Culture  

An effective ERM framework may help an organization's many departments pay more attention to risk. Since the corporate culture has changed, workers are more empowered to handle risks and freely address vulnerabilities. Silos between management and employees must be eliminated in order for risk management to be effective. 

The freedom to discuss risks amongst different parts of the company is beneficial to all of them. You may give facts and ideas much more easily to senior leaders. The general public is better aware and prepared to do their duties now than ever before. As a result, decision-making is improved throughout the business, and a communicative culture is fostered. 

Improved Reporting  

A framework for risk management encourages employees to examine and submit risk data. IT allows stakeholders to monitor risks via specified indicators and develop reports to share the results with other parties. 

The reports are standardized by a risk management business to ensure that all important risks are monitored, helping to enhance decision-making. Leaders will be aware of operational risk areas due to the abundance of data accessible. 

An effective enterprise risk management technology makes use of operational risk indicators, keeps tabs on each management approach, and alerts users to emerging possibilities. Management may better assess the organization's risk appetite and general health based on the information provided by the reports, as well. Decision-makers may then alter policies and plans to increase their tolerance for risk and increase their company's potential for development. 

Expand Risk Assessments  

Businesses generate distinct key risk indicators with the help of enterprise risk management (ERM). This system provides lots of alerts to management before a problem arises. Metrics and procedures are also used by organizations to monitor the success of risk management initiatives and to improve the quality of reporting and analysis. Changes in vulnerability to operational hazards can be tracked simply by individuals, and the appropriate personnel may be alerted to take action. 

ERM broadens everyone's view of risk. Elimination and avoidance of danger were the primary goals of risk prevention in the past. An organization, on the other hand, is required to take several risks in order to succeed. The problem is deciding which to keep and which to throw out. An ERM platform gives you the tools and the foundation you need to assess new market possibilities and boost earnings. 

Resource allocation is optimized by ERM 

In the absence of an ERM strategy, risk is managed and discussed throughout the organization. While risk management is crucial for every business unit, an effective ERM program helps to reinforce and standardize the process. 

Provide metrics to measure progress from a consolidated location and eliminate redundant activities. Managers must teach key personnel in an ERM Program to reduce redundant procedures to a minimum. It's easier to manage risk mitigation resources if a company trains employees and standardizes ERM best practices. 

Compliance is Coordinated  

Most businesses are concerned about industry-related compliance because it poses the greatest risk. Large corporations, in particular, have a tough time navigating the maze of rules. 

Business risk management reporting programs are used by many auditors and examiners. As a result, audits are less expensive, and resources are not squandered. A company's compliance with all rules is ensured via data presented as reports. 

These are just some of the benefits businesses can expect from a proper ERM framework. It used to be hard and expensive to use technology to implement an ERM framework for small businesses because these solutions used to be very expensive. Things are no longer the same now; most ERM platforms can now be acquired for a very small investment. Cloud based solutions cost a lot less compared to on-premise solutions and are also much easier to implement without causing any business disruptions. 

The ease of use of modern ERM platforms and their low cost of implementation are two major reasons that the platforms are becoming mainstream. Businesses that want to stay competitive need to look at the technology they can use to manage risks.  

 
The risk and compliance department is usually seen as a crucial element of the business that enables it to function, but it is not expected to contribute to growth in the bank. Be aware that strategic growth plans for banks include elements such as risk and compliance. 

Most banks budget for higher risk and compliance management expenses because as they develop, they'll need more sophisticated risk and compliance capabilities; thus, they factor such costs into their growth plans. Risk and compliance, on the other hand, are considerably less prevalent as the major drivers of a bank's expansion. 

Turning Cost Centers into Growth Engines 

There are considerable advantages for banks in transforming risk and compliance operations from expense centers to revenue generators. Although they demand considerable investment, risk and compliance are generally seen as cost centers since profits or growth cannot be considerably increased as a result of their presence. Both of these traits have nothing to do with risk or compliance; rather, they are a byproduct of how risk and compliance are managed in financial institutions and banks. 

Risk and compliance are crucial, but they're also difficult to manage. To make matters worse, divisions in charge of risk and compliance at banks are swamped with urgently needed work that also demands a high degree of alertness. While trying to keep the present bank activities running smoothly, the teams often neglect to focus on creating new value. For one thing, risk and compliance processes keep these groups highly busy, and they also have a heavy administrative load. 

There is no better way to show how much work is put into risk and compliance management than via risk assessments. As an example, think about all the processes a member of the risk management team must go through in order to complete a risk assessment properly. A number of departments must first provide them with risk evaluations before they can proceed any further. After that, the risk reports must be reviewed to obtain the most important data. After that, the data must be normalized before it can be integrated with other information and evaluated. Observe: The risk analysis is still in the planning stages. These steps are necessary before doing the actual evaluation of risks 

In most cases, erm software solutions take care of the criteria for you. A risk management software already stores all of the data, so there's no need to gather it. Risk management platforms standardize all data automatically, thus studying each report to extract the relevant information is pointless. Rather of wasting time on administrative duties, the person doing the risk assessment has everything they need. 

Increasing the Potency of Something 

This department must provide a financial or strategic contribution toward the bottom line of the company if risk and compliance will be shifted from cost centers to growth drivers. Increasing the efficiency of risk and compliance teams will require automating administrative activities. Because of this, the compliance team can better educate and supervise the organization's employees. Reduced non-compliance and the ensuing penalties and fines levied by regulatory authorities improve the bank's finances immediately. This is beneficial. Compliant technology also helps financial institutions to lower their compliance expenses, resulting in increased profits. 

By assisting top management in making smart decisions, the risk management team makes it even simpler for them to create value. A company's risk managers should be the best educated about new threats and possibilities. In order to help the risk management team, anticipate new hazards, technology might be utilized. The ability to assess new risks is important for strategic growth. Instead of merely managing current risks, the team may bring value to the business by concentrating on risk prediction. 

Technological and Cultural Shifts 

But this is only the beginning for banks, which now have unprecedented access to AI-based technologies. As a result of this shift, banks will have to reassess their risk-and-compliance strategies in order to remain competitive. Due to the low adoption rate, the plan will pay off handsomely for the early adopters. 

Organizations that use cutting-edge technology and include it in their risk and compliance frameworks will have an advantage over their rivals. In order to get an edge, it is necessary to adopt the technology fast before everyone else does. 

Regulatory changes are an unavoidable reality for financial sector organizations. The government is understandably concerned with the financial sector's risk management. The global financial crisis, which began as a result of a few banks breaching the spirit, if not the letter, of regulations and laws, has only raised regulatory pressure on the sector. Businesses must ensure that they are able to manage regulatory change effectively. However, firms seeking to outperform the competition understand that simply adhering to regulatory changes in a timely manner is insufficient; the key to defeating the competition is to stay ahead of regulatory changes. 

Read also: Regulatory Examination 

RCM as a Reactive Process 

While the majority of firms see the value of proactive regulatory change management, few are capable of implementing it. Managing regulatory change entails sorting through thousands of documents to ensure that the impacts of impending changes have been appropriately assessed, and then making thousands of modifications to rules, processes, and workflows to accommodate the changes. Due to the enormous amount of time and effort necessary, businesses are barely able to keep up with regulatory change. They succeed in ensuring that they are prepared for the changes by the time they become law, but there is a way to approach the issue more pro-actively and produce significantly better results. 

Proactive RCM Advantages 

Before we discuss how to manage regulatory change proactively, let us consider why we should strive for proactive management. The advantages of being proactive include the following: 

• Productivity gains
• Cost savings
• Competitive edge
• Improved regulatory compliance and risk management

 
Productivity Gains 

Proactive regulatory change management results in increased productivity across the organization. Regulatory changes instill a great deal of uncertainty in an organization. If a major regulation is implemented, the entire business's productivity would suffer as a result of the uncertainty generated by the legislation. Employees are unaware of which aspects of the firm may need to alter, making future planning extremely difficult. Organizations that can anticipate regulatory changes and adapt accordingly can decrease this period of uncertainty, resulting in increased productivity across the organization. 

Cost Savings 

Proactively managing regulatory change also helps to reduce total compliance expenses. By reducing the time required for firms to comply with new regulations, we also reduce the labor hours required for regulatory change management. Additionally, it reduces the likelihood of compliance infractions by providing the organization with additional time to train employees on the new requirements, which results in lesser penalties charged for compliance violations. 

Advantage in the Market 

Regulatory change management is not just an operational requirement; it can also be an effective sales and marketing strategy. Businesses must adjust their policies and practices to reflect impending changes before pursuing new business - they must understand the implications of the changes for their organization before making any commitments. Proactively managing regulatory change entails that your business will be preparing and strategizing while your competitors are still making sense of the regulatory changes. 

 
Compliance and Risk Management are Enhanced 

Compliance and risk management are impacted directly by proactive regulatory change management. Understanding the scope of regulatory changes and their impact on the company enables organizations to quickly become compliant. Additionally, risk management becomes easier as new hazards may be eliminated rapidly. 

The Secret to Remaining Competitive 

The key to being current with regulatory changes is to leverage technology and automate whenever possible. A very simple example is detecting regulatory changes — if a 100-page document contains five minor modifications, it will take many hours for a person to look through the old and new versions of the text to determine where the changes happened. In a couple of seconds, computers can detect any alteration to a document. 

Organizations must be more judicious in their resource allocation. Experienced and costly risk and compliance personnel should not be wasting their time performing tasks that can be performed more efficiently and effectively by computers – such tasks should be offloaded to technology so that personnel can focus on the big picture and improving the organization's outlook. 

Regulatory changes are an inescapable reality for firms in the financial sector. The government is obviously concerned about risk management in the financial sector. The global financial crisis, which began as a result of a few banks violating the spirit, if not the letter, of regulations and laws, has only added to the sector's regulatory burden. Businesses must ensure that they are capable of properly managing regulatory change. However, organizations wishing to outperform the competition recognize that simply complying with regulatory changes on time is insufficient; the key to outperforming the competition is to stay ahead of regulatory changes. 

While all of the actions, planning, strategy, and work that companies have undertaken to manage regulatory changes are crucial, it is critical to recall where it all began. A firm can only take the appropriate action and make the appropriate decision if it has the appropriate attitude. Businesses that truly want to thrive will need to modify more than a few action items in their plans and components of their strategy - they will need to look at the broad picture and ensure that all decision makers and stakeholders within the organization have the proper mentality. 

This is critical to remember given the unique nature of not only 2020, but also 2021 and 2022. Everyone is aware of what has occurred and how it has affected the world; nonetheless, it is critical to recognize that the year 2021 is markedly different from 2020, and consequently, the year 2022 will also be different when it comes to the pandemic's repercussions. 2020 was a year in which businesses attempted to survive to the best of their abilities, 2021 was a year in which businesses attempted to capitalize on new opportunities, and 2022 will be the year in which the global community adjusts to the new normal. 

Changing Needs of a Changing Regulatory Environment 

There are six considerations businesses should make as they prepare for regulatory change management in 2021. The first point is that firms must comprehend that 2020 was not the same as 2021. Nobody anticipated the epidemic in 2020, which is why the government also granted businesses considerable latitude in terms of reporting and monitoring. Not only so, but customers also received significant assistance in the form of cheap interest rates, stimulus cheques, and PPP loans. 

It's critical to remember that, while the reforms implemented in 2020 benefited businesses, banks, and even consumers, they also presented some new obstacles. Additionally, rule changes introduce new risks or alter existing risks, such as increased default rates associated with extension, forfeiture, and other concerns. Banks, for example, face a troublesome danger when historically low interest rates result in less profit but the same volume of loans to process. 

2021 Is the Year of Reconstruction 

The most noticeable difference between 2020 and 2021 is that 2020 was a year of survival, whereas 2021 is a year of recovery. Businesses and governments were doing the best they could with few information and no news of the pandemic's conclusion. The year 2021 offers an entirely different picture of society and commerce. Vaccines are now widely available, and the health care industry is far more efficient in managing the disease than it was a year ago. 

This means that enterprises will now resume more typical operational procedures. All of the leeway granted in 2020 will gradually be withdrawn. Businesses would have to shift gears and begin capitalizing on newly available opportunities, rather than simply focus on survival, as they did the previous year. 

Managing regulatory change has always been both an art and a science. When it comes to implementing rules and ensuring that all corporate activities conform with the new legislation, it is a science. It is also an art, because the greatest regulatory change management professionals do not just focus on new legislation; they anticipate regulatory changes as well. When we examine the statements made by government authorities throughout the preceding year, we see that the majority of them focused on pandemic management. However, if we examine what they're discussing now, it's evident that their focus has moved. Additionally, the present administration has not only announced the appointment of new individuals to run regulatory agencies but has also created wholly new designations and roles inside regulatory organizations. 

Every indication point to a sea change in the way organizations and enterprises are controlled. One of the most significant changes will be in the way firms are judged. The days of firms being evaluated solely on the basis of their financial performance may be numbered, as numerous new aspects and considerations are being incorporated into the way company performance and a business's impact on society are measured. The prudent course of action at the moment is to ensure that your firm has a regulatory management software in place that is capable of rapidly adapting to the new rules and regulations anticipated under the new administration. 

Most businesses can thrive quite well as long as the economy and environment remain healthy. We only learn about corporations that use excessive leverage or take on excessive risks during a financial crisis. The 2008 financial crisis was one such incident; many enterprises that had taken on excessive risk when times were good ended up collapsing. The current pandemic is another example of a comparable crisis that has highlighted many companies' worst weaknesses. 

Numerous firms recognized that their risk management frameworks fell short of industry standards. It's clear to see why the majority of static risk management software fell short of expectations in 2020. Generally, the risks that firms must control do not vary very frequently. While static risk management frameworks exhibit several limitations under normal circumstances, their performance is nonetheless considered adequate by the majority of enterprises. The pandemic, on the other hand, demonstrated all the disadvantages of organizations relying on out-of-date technology to handle risks. 

How the Pandemic Changed the Nature of the Game 

One of the most critical concepts for any risk manager to grasp is that the pandemic is not a single risk that must be addressed. The pandemic is a significant worldwide occurrence that has introduced numerous new hazards and challenges that must be carefully addressed. This is also why static risk frameworks struggle to keep up with the new threats that develop and evolve as the pandemic progresses. 

What makes managing the epidemic so tough for many organizations is the fact that it is always evolving and changing. These changes were triggered not only by the virus itself, but also by the local and federal government's response. Cities experienced varying degrees of infection and governments responded in markedly different ways. Some states implemented complete lockdowns, while others just requested residents to follow standard operating procedures but did not enforce them initially. As more data became available, many states altered their strategy and adopted new rules and policies requiring businesses to adhere to in order to continue functioning during the pandemic. 

This required businesses to constantly monitor new rules and regulations, as well as new data regarding the epidemic, in order to ensure that their own response to the pandemic was appropriate. This meant that the risks that a business was attempting to mitigate or manage were constantly shifting, sometimes in a matter of weeks. Any organization that continued to use a static risk management system that took months to discover and assess developing risks found itself without the tools necessary to manage risks to their business efficiently. 

The Benefits of a Framework for Digital Risk Management 

Organizations that used agile risk management technology had a significantly different experience managing risks during the pandemic than businesses that continued to use a static risk management framework. Risk management technology-aided them in assessing risks instantaneously, forecasting developing threats based on data trends, and providing real-time risk measurements. This meant that rather than spending significant time just understanding the risks affecting the business, these organizations focused the majority of their time ensuring that all risks identified by their risk management framework were mitigated as fast and efficiently as possible. 

Making the Transition from a Static to a Dynamic Framework 

The good news for any firm is that if it is currently utilizing a static risk management system, migrating to a dynamic framework is considerably easier now. The advent of cloud solutions means that firms can swiftly install a cloud-based, out-of-the-box, purpose-built risk management solution rather than investing hundreds of thousands of dollars and 12 or more months. Cloud solutions do not require on-premises hardware or resources and instead function in the cloud. This considerably minimizes implementation and management expenses, as well as the time required to establish such a system. 

Certain cloud solutions on the market might be delivered within a few days. This means that any firm now dealing with its risk mitigation framework can potentially convert the entire framework in weeks, rather than months or years, and rapidly begin receiving the risk intelligence and metrics they require.  

Risk managers are able to generate a lot more value for organizations when they have powerful tools that can be used to monitor, manage, and mitigate risks. Risk technology helps businesses gain a deeper understanding of the risk exposure of the organization. It also helps them to deliver better services to customers and create better relationships with regulatory agencies through better reporting.  

Managing business continuity and information security is critical for risk management and compliance in an era of digital transformation. These two considerations are essential for businesses to remain current, stable, and healthy in the market, with an internal alignment consistent with best protection practices. 

These notions are similar and, as a result, may be misunderstood. In this regard, the objective is to understand what each one entails and how they interact. Additionally, to provide this stability and protection for all layers, the business must understand how to obtain outside assistance and value it. 

If you want to understand the subject thoroughly, read through all of the issues we shall discuss below. 

Risk Management and Compliance Are Two Terms That Are Frequently Used Interchangeably 

Let us begin by defining terms. Risk management is the process of restructuring an organization to address uncertainties and dangers to develop internal initiatives and procedures. It is a method of distributing resources efficiently while taking into account the significant risks that can disrupt activities and result in losses. 

Management begins by identifying these unplanned events, which helps the organization understand the unique threats associated with each set. They can be environmental, physical, financial, or digital, or a result of individuals working in the environment. 

Then management moves on to the assessment step of these threats, determining the magnitude of each one's impact. This allows for the separation of risks and their classification according to the degree of consequence they generate. After all, they are not identical and should not be handled the same way. 

On this basis, the internal team can create contingency actions for each danger, prioritizing significant difficulties. In this manner, everyone will be prepared for the worst-case scenario. 

Thus, this administration aims to strike a balance between the objectives and the dangers that threaten them. Teams may sustain productivity through this proactive management approach by reducing these external or internal causes and implementing response plans as needed. 

Compliance 

Compliance, on the other hand, is conformance with pre-established laws and regulations. The organization adapts to meet prescription requirements and handles all systems and techniques necessary to assure compliance. The goal is to avoid fines, indemnities, and conflicts with inspection agencies. 

It is critical to remember that compliance also entails adhering to internal norms. Thus, it is a method of standardizing procedures and assuring conformance to standards. Businesses can tackle fraud, corruption, policy inconsistencies, and security risks through compliance. 

The significant advantage is that stakeholders benefit from increased clarity and transparency. Thus, the organization becomes more valuable and efficient for its consumers, establishes more substantial agreements and collaborations with interested parties, and gains market credibility. 

Compliance is a three-stage process that includes prevention, detection, and correction. The first phase focuses on preventive measures that aim to mitigate the risks of non-compliance. 

Additionally, it defines the process of developing strategies and regulations to aid in the process. Detection is concerned with finding remaining gaps and problems, whereas correction is concerned with applying sanctions and changes to address the lack of alignment. 

What are the compliance management challenges? 

When discussing compliance, it's helpful to consider the primary problems associated with this activity in businesses. One example is a lack of visibility. Many managers lack a holistic view and control over the way technologies are used, employee behaviors, and the overall security of information. 

This lack of clarity impairs control and has a detrimental effect on the organization's alignment. 

Additionally, there is a shortage of data and system integration. Certain businesses continue to operate in silos, with sectors operating alone and communicating little with one another. As a result, it isn't easy to establish agility through collaborative effort and a compliance vision. 

Alignment becomes more complicated when each sector operates according to its own set of regulations. This separation causes a communication bottleneck, which becomes an impediment to compliance. 

Another point worth mentioning is a lack of cultural support. In other words, for a business to successfully implement a compliance policy and generate positive outcomes, it is required to reorganize its culture and operations, as well as everyone's thinking. 

We recognize this when we look at information security laws. If members and teams lack data protection and privacy control culture, complying with the rules addressing the issue will be even more challenging. Management will face a difficult task in ensuring this crucial alignment for compliance. 

Similarly, a lack of training for members on applicable legislation jeopardizes compliance. The adaption effort will be more challenging if the teams do not understand the prescriptions' ideas and how to implement them. It is critical to approach this challenge with open communication and well-defined adaptation plans. 

How are risk management and compliance distinct? 

To help you better comprehend the relationship between risk control and compliance, we'll look at the distinctions between the two ideas. The first is that risk management is entirely preventative. 

In other words, it is a collection of measures designed to address hazards in advance of their occurrence, thereby preparing the business for contingency events. This is in contrast to a remedial strategy, which is concerned primarily with dangers when they occur. 

Additionally, this proactive approach is distinct from compliance, which is a more prescriptive strategy. Thus, the emphasis is on adhering to established rules and laws. While risk management is concerned with preventing hazards as an end in itself, compliance is concerned with the prevention of dangers as a means to an objective: conformance with the standards. 

Additionally, when collaborating with the management of potential dangers, a concerted effort is made to define and detail threats, their ramifications, and their features. On the other side, compliance management takes a broader view of issues, paying careful regard to the prescriptions given by higher bodies. 

Aligning activities with the company goal and executing them according to a structured strategy contributes to risk mitigation and enhances the likelihood of business success. However, there is a stage in Strategic Planning that is sometimes ignored despite its critical nature: the study of business risks. 

Organizations of all sorts and sizes are subject to external and internal pressures and variables that make their success unpredictable. Risks that are not properly quantified harm the business's health at several levels. Continue reading this article to have a better understanding of business risk and the many forms of risk. 

What is the definition of business risk? 

When we discuss goals, we might refer to financial, safety, environmental, or other objectives that are directly related to the company's vision. Any impediment to the actions necessary to accomplish these goals is called a risk. 

Risk management is an iterative process that aids companies in developing strategies, accomplishing objectives, and making sound decisions. Managers can forecast situations that might affect the operation of the business and cause interference at various levels through risk analysis (such as strategic, throughout the organization, project, product, and process). 

Although only 35% of businesses have well-defined processes for managing business risks, this exercise assists entrepreneurs in developing a clear and forceful perspective of the next steps and evaluating methods to reduce impacts and reactions on the day-to-day operations of the firm. 

The significance of risk assessment 

When it comes to business management, minimal attention is necessary. Even little errors might jeopardize a whole operation. Problems such as a lack of risk management might result in damage to the business, impeding its sustainable growth. It is critical to understand the dangers to prevent them. In summary, risk management is described as the activity of monitoring, managing, and predicting. 

The risk management process should include the following: 

• Establish a framework for risk analysis.
• Conduct an analysis of important assets' vulnerabilities and inherent risks.
• Evaluate risks based on their likelihood and derived effect.
• Identify, characterize, and assess the occurrence's impact.
• Monitor and criticize the results.
• Manage risks by identifying and prioritizing risk-reduction activities.
• To recognise hazards and take appropriate action, when necessary, efficient controls with well-defined parameters must be implemented. 

This enables the use of preventative measures and eventual containment to avoid or reduce the projected situations. By preparing for this, you ensure the business's security and enhance its chances of success. 

Among the benefits of effective risk management software are the following: 

• Mitigation of uncertainty
• Mitigating the negative impact of a troubling incident
• Assistance with strategic decision-making

Using Risk Analytics for Business Decisions 

Risk analysis is connected to the notion of Competitive Intelligence since it provides context for business data. With risk management, the firm is constantly on the lookout for methods to enhance performance. Finally, understanding the value of sound risk management is critical for the enterprise's future success. 

Risks must be quantified because once quantified, they may also be managed. When businesses understand the real scope of the risks they face, they can make better-informed decisions. Consider it like plotting a path across perilous terrain. There is no way to avoid the terrain, and similarly, a firm cannot entirely avoid the dangers inherent in the commercial environment. Because the companies must traverse difficult terrain, they must choose a route that avoids the most harmful hazards along the way. 

That is essentially the function of risk management in the company. When they plot the path of their business, they must consider the riskiest areas of the terrain and plan accordingly. This can be accomplished by avoiding the riskiest areas of the landscape or by preparing in advance to ensure the business's survival. Businesses frequently get insurance, develop backup plans, recruit more staff, and implement a variety of other similar measures to assist them in weathering the storm. Numerous organizations are increasingly using risk management technologies to assist them in managing company risks and operating more profitably. 

We can only expect this trend to continue. Risk analytics will surely be a regular part of business intelligence briefings in businesses across the world. CEOs will depend on their AI assistants to tell them about the latest risk analytics first thing in the morning. Assessments of different strategies will also be much more accurate when combined with risk analytics and predictions. It is also important to remember that it isn’t just our ability to analyze data that is improving – we can also now capture data from more sources than ever before using new monitoring technologies. 

Risk management is not a one-time or limited-time activity — it is a continuous process that must constantly operate properly. This is also why achieving ongoing progress in risk management can be so difficult for organizations - it needs year-round monitoring and dedication. 

The majority of organizations employ specialized risk management framework people, who serve as the business's sole line of defense against risks. This arrangement, we feel, is not sustainable. Any system that needs continual monitoring and is dependent on personnel is doomed to fail. Individuals are imperfect, and it is irrational to believe that they will make no errors or miss no indications over the course of a year. These errors might wind up costing firms a significant amount of money. 

There are four critical components that a sustainable risk management program must include in order to produce consistent results: 

• Adding value to employees through automation
• Providing risk management tools
• Risk prediction and proactive risk mitigation
• Increasing the organization's size through improved risk management

Automating Employee Enhancement 

While automation is required for long-term success, we must also grasp the role of technology in producing consistent outcomes. Automation in risk management does not mean that workers are being replaced by computers or algorithms; rather, it means that their performance is being enhanced. The operative word here is "adjust." It implies "to supplement" or "to augment" anything, which is precisely what automation accomplishes for risk managers. 

The prudent approach to risk management automation is to concentrate on the aspects of the work that humans struggle with. We do not need to replace these individuals; rather, we need to ensure that the performance gaps they have are addressed. There are several areas of compliance where humans outperform machines significantly. Our capacity to perceive the broad picture and give solutions is unmatched and will stay so until artificial intelligence is developed. Humans are capable of collaborating, investigating, auditing, and finally creating solutions that machines just lack the intellectual ability for. 

However, when it comes to risk monitoring and alerting, computers outperform humans enormously. The software is inexhaustible - it can monitor every second of the day, 365 days a year, without fail. Additionally, software solutions are more adept at detecting and informing key stakeholders about changes. Individuals become aware of issues only after conducting an audit. Continuous monitoring of millions of data points and thousands of documents enables software solutions to detect changes instantly and wherever they occur. 

Providing Risk Management Tools 

Any firm seeking to maximize risk management productivity must strike the proper mix of technology and risk employees. The most efficient method is to allocate humans to tasks that they excel at and computers to tasks that they excel at. Simple and menial tasks must be totally automated so that employees may focus on the big picture and provide the outcomes required by the company. 

Risk management technology substantially alters the risk manager's job description. Although risk managers have years of education and expertise in risk management, they spend a significant amount of time in the office performing routine administrative work and risk monitoring. Risk management technology automates the routine tasks associated with risk management, allowing risk managers to maximize the value of their education and expertise. Rather than becoming bogged down in paperwork and other administrative chores, they now have the day free to assess the many dangers that the office faces and devise strategies to reduce them. 

Risk Prediction and Proactive Risk Mitigation 

Risks must be handled proactively, and proactive risk management is only feasible with accurate risk forecasting. Businesses that use a reactive approach to risk management are susceptible - a risk can always materialize and produce a problem that cannot be resolved soon enough. Risk forecasting guarantees that regardless of the magnitude of the risk, the business will have time to minimize it. It enables organizations to prepare by thoroughly analyzing the risk, testing alternative solutions, and going through the specifics and plan with many specialists several times. 

Artificial intelligence-based risk management solutions can assist organizations in properly forecasting risk. When it comes to risk management, there is a significant advantage to employing intelligent technology. These systems are capable of monitoring hazards 24 hours a day, 365 days a year, without missing any changes. They may ingest data from a number of sources and quickly make connections between risk variables and other business components. Additionally, these systems automatically alert designated stakeholders of any growing risk, allowing for quick remedial action to be performed before the risk becomes a reality for the organization. 

Enhancing Organizational Growth Through Improved Risk Management 

Risk management is sometimes viewed as a necessary expenditure, but we can leverage it to our benefit. We need to shift our attention away from risk as a cost center and toward how we can leverage it to become the market leader. Every firm must negotiate the business environment, which is fraught with dangers. Firms that are aware of these dangers have a better chance of survival and growth, whereas businesses that are unaware of these risks are vulnerable. 

Thus, the firm with the finest risk management system in the market will also be the one that can withstand the industry's most severe challenges. Numerous firms have surpassed the competition as a result of making the correct decisions at the appropriate moment. They were not clairvoyant – they just possessed the finest data on impending hazards and were aware of the appropriate course of action to follow in light of those risks. Automated risk management solutions significantly improve your organization's capacity to anticipate and prepare appropriately. 

The first step in risk management is to identify them: while there are some common threats that fintech companies face, not all of them provide the same services or operate in the same markets, which means that each company faces unique safety and prevention challenges. 

Having said that, we recommend that you identify the risks that your fintech faces based on the unique characteristics of its products and services, as well as the unique characteristics of its target audience and environment. 

Consult third-party risk-prevention experts 

During these stages of risk analysis and program development, the assistance of experts in digital security and prevention can result in significant improvements and expand the scope of actions. 

Bear in mind that this process incorporates legal and technological aspects of third party risk management, and its successful development requires the intervention of true specialists in these fields who provide the best resources in accordance with applicable state laws and regulations, while also considering the unique needs of your fintech. 

Adhere to KYC and AML policies and procedures 

Standards and procedures that are widely accepted - and have international application - and aimed at strengthening financial systems' security and fraud prevention are critical pillars of a successful risk management program. 

Among these, KYC and AML stand out: without a doubt, adhering to them will significantly reduce your fintech's vulnerability and enable it to avoid legal, reputational, and financial risks. 

KYC standards, on the other hand, refer to Know Your Customer. As a result, they encompass all actions and measures aimed at eliciting information about the user, particularly those pertaining to the source of their financial assets. 

Fintech companies, like traditional financial institutions, avoid business relationships with criminal organizations and individuals who profit from criminal activity. 

Meanwhile, AML regulations (Anti-Money Laundering) aim to prevent criminals from concealing the illicit origins of their funds and allowing them to circulate freely throughout the financial system. 

As a result, they demand, among other things, that businesses establish regulatory frameworks and commercial parameters that prohibit this illegal activity: in practice, a common restriction is the establishment of low transaction values for new customers who have limited time with a particular account and whose source of funds has not been thoroughly investigated. 

Understand The Security Legislation That Applies to Fintech in General. 

Along with knowledge of and compliance with KYC and AML standards, a strong risk management program requires a firm grasp of the general legislation governing fintech companies, as this avoids legal complications while simultaneously strengthening internal security. 

Join Anti-Fraud Networks 

This aspect entails forming alliances with sector-related businesses, organizations, and public entities dedicated to fraud prevention. 

As with a credit bureau, this system enables organizations to share agreed-upon data and information in order to assist one another and strengthen their security mechanisms. Simply sharing experiences and understanding the dynamics of fraud committed against other fintech companies benefits risk management and prevention significantly. 

Verify a person's background and digital identity 

To comply with KYC and AML principles and, in general, to strengthen risk management, you must optimize your processes for developing new business relationships and customer acquisition from a security and prevention perspective. 

In other words, it is critical to understand the individuals and the source of their funds prior to integrating them into your services and granting them access to your financial platforms' attributes. 

Simultaneously, once these are accepted and have a digital user, authentication mechanisms must be implemented to ensure that criminals and unauthorized third parties cannot conduct fraudulent accesses and transactions. 

Possess cutting-edge technology for prevention 

Similarly, to how cyber criminals and hackers have honed their fraud mechanisms, an increasing number of effective technologies and solutions are emerging that significantly enhance digital security and risk management capabilities. It is critical that your fintech is constantly concerned with having the best technological resources available in these areas, provided by teams of true fraud prevention specialists. 

Additionally, to the points mentioned, establishing a dedicated compliance and risk management department is a necessary step for your fintech if it is growing and does not yet have a robust organizational structure. 

Training security and prevention professionals in these areas, conducting operations investigations to identify deficiencies, and detecting new threats are just a few of the critical tasks that exist within the security and prevention environment. 

These steps will enable businesses to enhance their risk management capabilities and become more efficient operations. This has a positive effect on the bottom line of the business as well. The reduction in risk related damages increases business profits, while the automation of risk management practices reduces operational costs. 

While every business understands the critical nature of regulatory compliance, we frequently hear about compliance violations and massive fines levied by regulatory bodies. Enforcing regulatory compliance is a challenging task because it requires compliance from every stakeholder in the business process. The employee dealing with customers on the front line must be aware of the organization's compliance requirements, but they are only the first line of defense. Then it becomes their manager's responsibility, then the compliance departments, and finally upper management's. 

If even one stakeholder in the process gets it wrong or overlooks an issue, non-compliance results. Organizations can take steps to prevent these errors and improve compliance. 

The first step is to make compliance more accessible. 

While training and development are critical for enforcing regulatory compliance, accessibility to compliance is just as critical. Employees may occasionally forget or require reference to compliance-related rules and documents. Any organization seeking increased compliance must ensure that such information and data are readily accessible at all points in the business process where compliance is critical. 

Step 2: Promoting and facilitating compliance consulting 

Organizations must enhance communication between their compliance departments and frontline employees. The front line of many organizations views the compliance department as the unit that regulates them. This perception arises because the compliance department contacts a frontline employee only to train and then to correct their errors. If the relationship is one of consulting, the efficiency of regulatory compliance increases. The frontline personnel should have the option of seeking assistance or advice from the compliance department at any time. 

Step 3: Anonymous questionnaires 

If multiple attempts to change the organization's compliance culture fail, management must investigate. Surveys are an excellent way to collect data, but there are two caveats: they should be anonymous, and they should focus on the culture rather than on individuals. Anonymity enables people to be candid without fear of losing their jobs. 

The questions should be about the culture rather than about other employees, because when people provide negative feedback about other employees, they feel as though they are jeopardizing the other employee's career. This may make them feel accused and cause them to withhold an honest response. The solution is to ask non-blaming questions. Rather than asking "have you observed any of your colleagues flouting compliance requirements", the proper question is "how frequently do you observe non-compliant behavior within the department or organization". 

Step 4: Demonstrate compliance 

Compliance's invisibility is a significant impediment to improving regulatory compliance. Organizations are unable to detect issues as they develop and instead learn about them months later during an audit. This allows for the issues to grow and become significant. Additionally, management lacks a holistic view of compliance – they are unable to see the current state of compliance and compliance issues and therefore must rely on manual reports generated on request. 

Visibility is why compliance software is critical for regulatory compliance improvement. When a compliance management system is implemented, management and compliance personnel gain a real-time view of the organization's compliance status. If a compliance issue arises, it becomes immediately visible to all interested parties and can be resolved immediately. 

Step 5: Automate controls 

There is no reason to rely solely on the vigilance of all participants in the business process. A more effective approach is to automate the business process. Additionally, compliance management systems are capable of detecting compliance violations. For instance, if a critical step in the compliance process is skipped, the system immediately flags the non-compliance. It is preferable to delegate regulatory compliance strategies to compliance professionals and to automate monitoring and tracking tasks. 

These 5 steps can help a business bring about not just a temporary change but a permanent improvement in the way it manages regulatory compliance. It is important to focus on the short-term goals of regulatory compliance, but short-term goals can only bring short term benefits. Focusing on structural issues is complicated and requires a lot of effort, but the structural improvements that are made because of the focus result in long-term benefits. Creating the right foundation for regulatory compliance can help a business for the next decade or even more. 

Compliance management technology is a great way for organizations to introduce a paradigm shift in the way they manage compliance. The cost of the technology has significantly decreased over the past few weeks, resulting the technology being easier to procure for small businesses. Any business that is serious about regulatory compliance should look at the available compliance management solutions and understand what those solutions can do for the organization and how they can help them achieve their corporate vision.  

Both risk and compliance management are dynamic fields that constantly evolve. Risk and compliance are impacted by a changing business environment, the economy, changing customer demands, and a company's vision, among other factors. Most of the changes we have observed in banking have been driven by information technology. The 2008 financial crisis was another significant force for change, as it forced the banking industry to rethink its risk management practices in light of the financial crisis's revelations of flaws and blind spots. 

Bank compliance management is a complicated area due to the amount of documentation required and the nature of banking services. Bankers provide critical financial services to the community and all of the local economy's major stakeholders. This means they must interact with a variety of different types of entities, businesses in a variety of different industries, and individuals who are unfamiliar with compliance requirements. They must provide these parties with the financial services they require while also adhering to all applicable compliance requirements. The issue's complexity is one of the reasons that bank compliance management is increasingly being managed through technology. 

By examining current banking and finance trends, banks can gain a better understanding of the changes that could affect them over the next couple of years. These trends are significant because they provide guidance to banks on how to future-proof their risk and compliance management infrastructure. 

Regulatory Requirements That Are Becoming Increasingly Stringent 

Since the 2008 global financial crisis, governments' tolerance for bank failures has waned, as has their appetite for initiatives that use taxpayer money to save banks. Regulatory agencies are now more aggressive in their monitoring of suspicious behavior, with many planning to employ advanced tools and technology to conduct more thorough audits. 

Banks must rise to the occasion by establishing a robust regulatory compliance framework that enables them to quickly detect and monitor non-compliance and risk. This can be accomplished through the use of compliance management solutions that provide continuous monitoring in addition to streamlined compliance workflows. 

Customer Expectations Have Shifted 

Customer expectations shifts will result in a sea change in the banking sector's profile. When customers interact with their bank, widespread use of technology will be the norm. At the age of 40, the current generation of young people living in the digital age will be the largest revenue contributor to banks. 

Customers appreciate digital banking services because they enable them to access their accounts and conduct necessary transactions at any time of day or night without visiting a bank. Digital banking benefits both banks and customers; banks benefit because they can provide services to customers without increasing headcount or other associated costs. Banks can serve more customers without expanding their physical branch network or hiring additional staff. 

Analytical Data for Risk Management 

Additionally, new risk management techniques, which are frequently associated with big data analysis, will be enabled by technology. The proliferation of modern technologies enables faster and more cost-effective processing and storage capabilities, enabling improved risk management and process integration. We have already seen the effects of technologies with significant risk management implications, such as big data and artificial intelligence. Predict360, our American Bankers Association-endorsed compliance management system, is powered by artificial intelligence. 

As banks increase their reliance on technology to manage risks and compliance, more risk and compliance data is generated. This data can assist banks in anticipating risks and identifying emerging risks more quickly. Additionally, risk and compliance technology provide banks with real-time risk and compliance data. There is no need to collect data manually in order to create reports. Instead, real-time metrics can be displayed on dashboards, enabling more informed executive decision making. 

Constant Need to Cut Costs 

Banks have increased profitability by implementing advanced operational efficiency techniques. Banks have always been an integral part of our lives; we rely on them to receive our wages, manage our finances, obtain loans, and perform a variety of other banking functions. This enabled banks to develop multiple revenue streams in which they faced no competition. We have seen the rise of born-digital electronic payments and other financial services over the last two decades, which threaten to erode banks' market share. 

Banks will need to rethink their operating costs in the future in order to deliver more value at a lower cost. Simplifying, standardizing, and digitizing will prove to be viable cost-cutting measures. By leveraging risk and compliance technology, banks can improve compliance and risk management while lowering management costs. This is accomplished through an incredibly rapid increase in productivity enabled by technology, which enables an organization's same number of employees to deliver greater value. 

Developing a Framework for Risk and Compliance Management That Is Future-Proof 

Banks considering investing in risk and compliance technology must ensure that the technology they select will endure the test of time. In this situation, cloud-based risk and compliance technology solutions have a distinct advantage. When a business adopts a technology, it is typically locked into that technology and must pay to access newer, updated versions. This does not, however, apply to cloud-based solutions. 

Because cloud solutions are managed by the provider and customers pay for access to the solution, they are updated at the provider's discretion. For example, our Predict360 solution is constantly updated to reflect new market requisites and regulatory changes. Our customers are never concerned with out-of-date tools or technology. 

Banks typically view risk and compliance as critical components of the business that enable it to operate, but do not anticipate the risk and compliance department to contribute to the bank's growth. Take note that both risk and compliance are critical components of banks' strategic growth plans. 

As a bank grows, it requires more sophisticated risk and compliance capabilities; therefore, the majority of banks budget for increased risk and compliance management costs and include them in their growth plans. However, it is far more uncommon to see risk and compliance as the primary drivers of a bank's growth. 

From Cost Centers to Engines of Growth 

Banks can transform risk and compliance functions from cost centers to growth drivers, resulting in significant benefits for the bank. Both risk and compliance are typically considered cost centers because, while they require significant investment, they cannot significantly increase a bank's profit or contribute to the bank's growth. It is critical to understand that neither of these characteristics is inherent in risk or compliance; rather, they are a result of how risk and compliance are managed in financial organizations and banks. 

Risk and compliance are extremely important and complex domains. Bank risk and compliance departments are overburdened with critical work – risk and compliance tasks that are both time-sensitive and require a high level of vigilance. The teams are frequently too preoccupied with managing the workflow and ensuring that existing bank operations run smoothly to concentrate on delivering additional value. A significant reason for this is that the teams are extremely busy with risk and compliance processes and have a high administrative burden. 

Risk assessments are an excellent illustration of how much effort goes into risk and compliance management on an administrative level. Consider the numerous steps that a member of the risk team must take in order to conduct a risk assessment. They must first obtain risk assessments from various departments. These risk reports must then be analyzed, and the critical information extracted. The data must then be standardized in order to be combined and analyzed. Take note that the assessment has not yet begun; all of these actions are prerequisites to the risk assessment itself. 

Most of the prerequisites are automated by risk management solutions. There is no need to collect data or risk reports because everything is already stored centrally in a risk management platform. There is no reason to study each report in order to extract the pertinent information, as the risk management platform standardizes all data automatically. The individual conducting the risk assessment has everything necessary to conduct the risk assessment directly rather than devoting time to administrative tasks. 

Adding Value 

Transferring risk and compliance from cost centers to growth drivers would require these departments to contribute financially to the business's bottom line or strategically to the business's growth plans. Once administrative tasks are automated, the risk and compliance teams will have more time to focus on strategic initiatives. The compliance team can concentrate on training and monitoring, thereby increasing compliance levels throughout the organization. This reduces the likelihood of non-compliance and the resulting penalties and fines imposed by regulatory bodies, directly benefiting the bank's finances. Additionally, compliance technology enables banks to reduce compliance costs, putting them further in the black. 

Value creation is made even easier for the risk management team because they can assist upper management in making sound decisions. Risk managers should be the most informed members of an organization about emerging risks and opportunities. Risk management technology can assist the risk management team in anticipating emerging risks. For strategic growth to occur, it is critical to have information about emerging risks. Rather than simply managing existing risks, focusing on risk prediction enables the team to add value to the organization. 

A Shift in Technology and Attitudes 

Banks now have access to more advanced AI-based technology than ever before, but this is just the beginning. Banks will need to rethink their approach to risk and compliance and recognize that they can outperform the competition by implementing better risk and compliance practices and tools. Few banks use risk and compliance to their advantage, which is why the strategy will be so beneficial to those that pioneer it. 

Businesses that implement modern technology and make it a part of their risk and compliance frameworks will be able to leave their competition behind. However, this needs to be done quickly, because implementing the technology once every other bank has it implemented will not provide an advantage. 

Regulatory change managers do not have an easy job during normal times. They must make sure that every process in the organization adheres to the regulatory framework. They also need to make sure that their organization is prepared for expected regulatory changes as well. This means that they need to have a pulse on very niche information and analytics to perform a task that is critical to the existence of the business. However, 2020 and 2021 can hardly be called normal times. The job that is tough in normal times becomes even more demanding when everything else is volatile. 

The Link Between Regulations and Stability 

It is important to understand the link between stability in the economy and regulatory changes. When everything is working the way it should, governments have no incentive to change the regulatory framework. There are periodic updates to cover new issues and technologies, but the regulatory framework otherwise remains the same. There are updates whenever there is a major regulatory failure or in uncertain economic times. The 2008 financial crisis is a good example of a major failure. There was a regulatory reckoning after 2008, resulting in many new rules and regulations that businesses must now abide by. 

2020 is a great example of uncertain economic times. The pandemic and the ensuing shutdowns have introduced a significant amount of volatility to all markets. Multiple parts of the economy are still shut down. More worryingly, there are new variants being discovered which may prolong the pandemic. All these factors have resulted in the economy being more vulnerable than it has been perhaps since the great depression. The government has all hands-on deck and is doing whatever it can to help it survive the pandemic. 

This means that there are a lot of regulatory updates being made, but most of these are currently making things easier for businesses. The government knows that regulatory pressure is the last thing that businesses need in these times, which is why it has reduced reporting requirements and has given businesses more time to provide the reports that are still required. However, these are temporary measures that will soon be replaced with something else. 

That is a major reason why businesses are so interested in regulatory change management technology in 2021. Every smart business owner knows that there are some regulatory updates coming in the next few months. The problem is that we cannot expect these changes to happen only once. The pandemic is evolving, and we cannot predict how it will go in the next few months. The actions taken by the regulatory bodies will depend on many similar unknowable factors. 

Out of the Ordinary Regulatory Changes 

Governments generally plan and implement regulatory changes very slowly. No government wants to harm the businesses that are helping the economy, which is why governments make sure that if there are any major regulatory updates coming along, they are announced as early as possible. The governments don’t announce the regulatory changes – they begin by announcing their intent to change regulations. Then they work with experts from within the industry, taking feedback from the biggest players, to create a set of regulations that solves the problem while still being sustainable for businesses. Once the regulatory changes have been finalized the governments announce the changes and give businesses a lot of time to come in compliance with the new rules.  

We cannot be sure that the same process will be followed in 2021. There simply isn’t enough time for the government to give to businesses to comply with the new regulations and be involved in the planning stages. The pandemic has ravaged the economy and governments want to get it in control as quickly as possible. They are doing this by changing the regulatory framework and adjusting as the pandemic itself evolves. 

This means that there isn’t just one set of regulations that businesses must manage; they need to instead manage the volatility in the regulatory framework itself. This is why Regtech has suddenly increased in demand so much across the world. Businesses knew that Regtech could help them manage regulatory changes better, but there was no immediate need for Regtech. It was one of those things which the business planned to do when it was comfortable with it. 2020 has introduced so much volatility that Regtech has become an immediate need for any business operating in the financial sector.  

The good news is that there are a lot of regulatory change management software available on the market. The wide variety of solutions available means that every business will be able to find a solutions that fits both its needs and its budget.  

The FinTech revolution has allowed many new players to enter the market. Disruptive banks and open banking have become serious competition for traditional banks. These new banks and financial services applications have yet to build a reputation. But that also means that they are not notoriously unethical. Which is probably an advantage. 

Step 1: Make Integrity Your Core Value 

Banking is a business based on trust. And trust is based on the belief that a company conducts its business with integrity. Simply put, if customers think they can't trust you, they won't keep their money with you. While the personal banker used to be the face of the bank and also the key to building trust with customers, today local banks are disappearing. Rather than dealing with a personal banker, clients are asked to handle almost all of their banking online. This change requires banks to maintain impeccable reputations. As each defect has a negative effect on the trust that customers place in you. 

Trust is not just about one-to-one interaction between the bank and the customer. Clients also look at their general conduct in society. This is especially apparent in the Millennial and Gen Z generations. They are very critical about where they spend their money. They prefer ethical companies. 

Having a clean reputation has been beneficial to banks. This means that they will not invest in companies that are not necessarily risky in compliance but also do not contribute to creating a better world, such as tobacco companies or arms manufacturers. They are booming now and will continue to be in the future, as Millennial and Gen Z generations outnumber Baby Boomers in size. Soon these generations will represent the largest group of consumers. And they are very critical about where they spend their money. They expect businesses to have high integrity and ethical morals. 

Step 2: Take Control of Your Compliance 

Compliance with the perceived integrity of banks plays a key role. Many banks are viewing compliance as a burden. It is true that it is a difficult job to do. Most banks have a hard time keeping track of their compliance. They have too many alerts to handle. And too much pressure from your colleagues to "process the payment because the customer is waiting." 

And don't expect any praise for being in control of your compliance. No one ever says, "This bank is great at preventing money laundering, they have never had fines or comments from regulators." But the opposite happens. If a bank has a compliance problem, it is an immediate scandal and seen as evidence that the banks have learned nothing from the financial crisis. Customers and the general public will say, "Look, they still only care about money." 

It's a thankless job. But, vital to maintaining your business. 

So, the best thing you can do is solidify your conformity perfectly. Make sure you don't miss any positive alerts. Get to know your customers and make sure you are aware of what is happening at your bank. Be in control. And if you can, take it one step further. 

Step 3: Your Compliance Software Should Help You 

Rules-based surveillance is no longer sufficient to monitor compliance. In fact, most of the transaction monitoring systems currently in use by banks do just that: monitor transactions. But money laundering, for example, cannot be detected by a system that is as simple as rule-based surveillance and deals only with individual transactions, as money laundering often starts with small payments that are not detected by the system. 

From a regulatory standpoint, it is also impossible to keep up with compliance with rules-based surveillance, as regulators are increasingly shifting to enforce rules that, for example, prevent banks from processing payments. to companies that operate in certain industries, rather than placing limits on the amounts of individual transactions. 

With principled surveillance, many different factors are taken into account when evaluating a payment. Rules are used, but the signals that these rules give are enriched with, among others, the following information about a client: 

Behavior patterns: What kind of behavior does a customer usually display? Is there something different about his behavior in this particular case? 

Network information: Who is the customer connected to? 

Risk-based surveillance; Is it a high-risk or low-risk customer? 

If banks manage to raise the quality of their compliance, they will significantly increase their chances of maintaining their business. If not avoiding fines from regulators, then certainly maintaining your reputation. By updating current systems with modern compliance management technology, banks have a great tool to help them regain control. But even for banks that are in control, modern technologies help to be more proactive in investigating integrity issues, as well as strategizing and adequately preparing for what is to come. 

Risk and compliance technology has been on the horizon for a long time but there is a very simple reason that many banks and financial institutions were not using it – risk and compliance management does not result in profits. However, certain changes in the market that have occurred over the past 5 years have completely changed the dynamic of risk and compliance technology for smaller companies and has resulted in increased technology adoption in companies across the country.  

Why Businesses Hesitate to Invest in Risk and Compliance  

Businesses invest money in places from where they can earn a profit – because businesses exist only to generate a profit. This means that any investment which will not provide a benefit to the bottom line will be avoided as much as it can. It is also important to remember that the organizational dynamics of smaller organizations are very different when compared to larger organizations.  

Large enterprises that operated nationwide have had risk and compliance technology implemented for more than a decade. Large enterprises can afford to spend hundreds of thousands of dollars on risk and compliance management because hundreds of thousands of dollars barely make a dent on the bottom line of the enterprise. Many of these large enterprises have billions of dollars of assets and investments – spending a million to ensure risk and compliance are managed properly is barely a blip on their financial radar. 

Smaller organizations work on different scales. Many smaller banks are only able to generate a small profit, which would be significantly affected by an investment of a million on risk and compliance management. Therefore, most risk and compliance solutions were focused on helping large enterprises – smaller organizations preferred to use manual methods of risk and compliance management. 

This means that other businesses will focus on risk and compliance technology only if it becomes important for their bottom line – which is exactly what has happened in the past few years.  

Risk and Compliance Technology and the Bottom Line  

There have been many changes in the market and in the way customers interact with banks and financial institutions that have completely changed the way businesses look at risk and compliance technology investments. A major driver for change has been new customer expectations. This is often overlooked, but we need to focus on how much the new customer that is opening a bank account for the first time has changed over the past decade. Most people from our generation who opened a bank account for the first time had to do it when they got a job or wanted to have some savings.  

For most people opening a bank account is the first time they interact with a financial service or company. This first experience gave us all a good idea of what it meant to interact with a financial service. We knew that there were certain bank processes which took some time to be completed and there was nothing we can do about it. This is important because we understood that financial transactions and account openings can have some delays built into them due to risk and compliance requirements and thus we accepted these delays. 

This is no longer true for the new generation that is now opening a bank account for the first time. This generation is used to online payment platforms and mobile applications that allow them to instantly transfer money to their friends and family. These people are used to financial transactions that occur instantly and account openings that can be done in a few seconds. When these people go to a bank to open our account at their told that their account will be opened in 3-4 days, they are dissatisfied with the speed of operations at banks and financial institutions.  

This was a wakeup call for banks. They realized that they would have to rework the way they delivered their services to customers and make them faster and more efficient. Risk and compliance technology is an important part of making banking better for customers because risk and compliance requirements are the main drivers of delay for many banks and financial services. These organizations know that they cannot skip the risk and compliance requirements therefore the only remaining solution is to automate risk and compliance to the degree where they can easily deliver services to customers while also fulfilling risk and compliance requirements.  

Another major factor that acted as a catalyst is the lowering prices of risk and compliance technology solutions. While there was a time when a business would have to invest millions to be able to access risk and compliance technology, nowadays cloud based risk and compliance management platforms can be procured at a very reasonable cost.  

The changing environment and the dynamic transformation of financial sector entities towards digital and multi-channel banking, requires compliance management professionals and especially the Compliance Officer an academic p repair comprehensive and multidisciplinary to be able to respond and meet the demands of a world in constant transformation. The compliance function is more demanding every day due to state regulations ‘local and external’ and expectations of the Board of Directors, so it is vitally important to find a way to increase its efficiency and effectiveness in the face of the challenges brought by new technology trends. disruptions that support businesses that are increasingly critical and competitive and that impact the risks to be considered in the development of AML (Anti Money Laundering) compliance plans and programs. 

The advances of digital banking derived from financial technologies (Fintech) in the global financial market have established a wide variety of products and services, which however involve at the same time different and complex types of risks that still the financial industry has not fully understood and managed them and they are leaving important pending tasks of identification and analysis regarding the treatment of risk that they must evaluate and complete within their organizations. Then "new risks and opportunities" open up both for clients, the financial system, obliged subjects as well as supervisors. 

New disruptive technological trends must necessarily be accompanied by the Compliance management solutions to carry out an objective and technical evaluation to mitigate the various emerging risks of this era of Fintech within each process and financial product impacted associated with money laundering and financing. of crimes. 

Creating a Modern Compliance Program 

As organizations continue to improve their business technology and the quality of their data, their Compliance team has the opportunity to provide a value-added service thanks to the power of data analysis (Data analytic and Artificial Intelligence) and other emerging technologies that they have also developed. Therefore, the compliance program must also be focused on: 

- Give priority to areas and products with a high and extreme level of risk, based on the assessment and acceptance of AML risk. 

- Analyze, if applicable, all transactions, especially those classified as high and extreme risk in less time, regardless of the type, volume or origin of the data (Artificial intelligence has more benefits than an AML system that only parameterizes groups of transactions according to defined filters). 

- Perform transactional data analysis with more coverage and security and in less execution time. 

- Quickly identify suspicious or fraudulent trends or transactions that go outside the demographic and transactional profile of customers, not only based on automated parameters, but also based on defined artificial intelligence criteria. 

- Improve the performance, value-added initiatives and the professional image of the compliance function vis-à-vis the organization and other external actors or interested parties (stakeholders). 

Fintech and Banking 

The Fintech-based services that are a reality today have the potential to change the business models, structures and operations of the traditional financial and banking industry, thus requiring new skills and competencies for the Compliance Officer who Apart from their expertise in the prevention of money laundering and financing of terrorism, they require technological support and knowledge and general management of economic, financial, accounting, tax, audit (financial, operational and forensic), AML prevention, legal issues. and regulatory, administrative, logistics, Information Technology (IT) systems and, above all, new trends in disruptive technology, among others. 

This innovative Fintech trend has a notable impact on the competitiveness of the service and the well-being of the client and poses a challenge for regulators and operators, it is also advisable to measure its impact on financial results, level of customer satisfaction, as well as the level compliance with the applicable regulations, since not all the laws of the countries contemplate and regulate in whole or in part the broad spectrum of these financial services innovations that are already a reality and are available to customers and users. 

The main business areas where the concept of Fintech is embodied are: payments and transactions, personal finance, consulting and marketing for investments and financing alternatives between individuals and companies; which include activities such as: mobile banking, big data and predictive models, AML compliance, crowdfunding, crowdlending (financing by several investors), cryptocurrencies and alternative currencies, foreign exchange market, automated process management and digitization, payments and transfers, p2p loans (online loans between individuals), security and privacy, financial advisory services, trading or marketing of crypto assets, among others. As can be seen, a large part of the financial activities related to Fintech are services provided by private banks and other financial entities, 

In this context, it is important to train all the officials in charge of these activities within the financial institution about the risks associated with Fintech and the prevention of money laundering, to also ensure that they are included in the monitoring and training program. Apart from specialized training for Compliance officers who must be fully trained is these new technologies. 

These challenges and pending tasks must be aligned in a coordinated manner so that the implementation of improvements is integrated and thus be able to be more effective in the results.  

Undoubtedly, the current global contingency has shaken the operating model of companies in various sectors. This confronts us with a reality previously unthinkable for many of the businesses that had not developed sufficient capacities. 

From a business perspective, the impact of the pandemic has left companies in various positions: 

• Businesses that have suddenly lost relevance and even viability. 
• Sectors with unstable structures and vulnerabilities that are sustainable in the short term, and that require transformation to regain relevance. 
• Business groups whose recovery will be closely linked to the reestablishment of the economy. 
• Companies in which structural changes have accelerated their growth. 

The sectors that foresee the greatest losses in 2021 are: 

• Hotels and Tourism 
• Outsourcing 
• Media 

In contrast, those who expect to have incomes greater than or equal to those of 2019 are: 

• Health 
• Electronics / Software 
• Consumer / Retail 

In this context, issues such as the digitization of services and the automation of processes are heard more as an urgency than as a vanguard project. 

In any scenario, it is relevant to review the strategy and the essential elements of the model to be implemented. To accelerate transformation initiatives that make it possible to exploit current advantages, create new ones, reduce disadvantages and even redesign models.  

Relevance of risk management in the new reality 

In this environment, risk management emerges as a unique tool capable of providing information on external and internal issues and their favorable or unfavorable influence on the business. This situation challenges the leaders of these initiatives, since they must approach them with different thinking approaches from those used before the health crisis, with a level of depth and clarity that leads to creating initiatives, reinforcing current ones, and above all promoting coordinated action in all management layers and from all pillars of the business: strategic, operational, and human resources. 

To achieve this strategy, it is worth analyzing how the "terrain" was left, the pillars that we considered relevant and, above all, the level of influence of external aspects such as: market for our products, new consumption habits, new regulations, new requirements of health and safety, supply chains and sources of financing, among others. 

Likewise, it will be worthwhile to constantly monitor the direction taken by the different areas of the operating model and the qualities to maintain and develop to follow the company's objectives. Aspects such as: 

• The availability and quality of resources in the supply chain 
• The capacity of the production processes themselves 
• Process digitization and automation 
• Customer experience
• Infrastructure physical security 
• Availability of technological resources and cybersecurity 
• Talent health and safety 
• Flexibility in work schemes 
• Reconfiguration of models 

Undoubtedly, the reconfiguration of business models and strategy will be present in the business dynamics for 2021. Businesses will have to create new supply chains, create more backups and failsafe measures for existing processes, and much more. It will be critical to ensure that the business can survive something like what happened in 2020 if it happens again.  

There is a great adage that there are never two of something – there are things which do not exist in the universe, there are things which are unique and therefore only 1 exists in the universe, but if there are no things which are only 2 – if there are more than 1, there will be many. The same is true for the pandemics. We were lucky that there was no such pandemic, but we now know it is possible and we need to be prepared for it. 

Dynamic risk analysis models 

Likewise, it will be important to structure dynamic risk models that analyze the evolution of current risks, study potential links between risks and the impact that in combination they may have on the organization. Models that include as a natural part of the process being alert to emerging risks; as well as the analysis of business opportunities that arise in changing environments such as those we already lived in and whose dynamism will sharpen. 

Integrated approach to management 

That the risk management model leads to a dynamic of operational execution integrated in all its elements and in all its management layers will be relevant to achieve a greater degree of flexibility in the operation, and thus increase the possibilities of achieving objectives in changing environments.  

An appropriate risk management solution would be a useful tool to keep the business on track in a changing and uncertain environment, as well as igniting the right engines in strategy execution to take advantage of strategic advantages, reinforce critical management areas and even reconfigure the operating model. In this scenario, the leadership of the Board of Directors will be essential to obtain the greatest benefits from the program. 

The management of risk is a coordinated set of activities designed to manage and protect a company against potential threats, whatever their involvement, this entails planning and use human and material resources to minimize risks or treat. 

It is a strategy that involves the preventive work of anticipating possible situations and considering the practice as part of the company's processes, but it also includes acting in a prescriptive way, that is, when the risk manifests itself without having been foreseen. 

In this case, risk management seeks to promote a dynamic behavior in the company so that it can respond quickly to events, uncertainties and changes of scenery, the final objective is always the constant improvement of the company's processes. 

Types of risks 

Risk is an effect that is triggered by certain circumstances, a deviation from the course and the objectives set by the administrators, as well as an event, a circumstance or a future condition, some cases that can occur within a company. The origin of the risk may be financial "external or internal", operational, related to human failure, incompetence of the administrators or due to issues inherent to the activities carried out. 

Recognizing the origin is important, but the role of risk management solutions is not to seek justifications, but to act to prevent these risks from turning into negative consequences for the company, if it has been done, we must work to mitigate these consequences, manage the possible crisis and generate actions to avoid its recurrence in the future. 

Key steps for risk management 

To establish an effective risk management policy in a company, it is necessary to consider the following steps: 

Organize the environment: Define the employee or sector responsible for risk management, ensure their training in the area and define permanent processes. 

Risk identification: The first step is, from the knowledge of the company's objectives, to recognize which risks must be considered and managed. 

Risk measurement: Not all risks have the same importance, in this phase, their probability and possible impact on the organization must be calculated, in qualitative and quantitative analyzes. 

Risk response: Define what actions should be taken to avoid, reduce or divide risks or turn them into opportunities rather than threats. 

Risk control: Verify if there were residual risks, new risks, or if the planned actions had the expected result in order, where appropriate, to promote changes in the strategy. 

Forms of Risk Management 

As is well known, the higher the risk of an activity or business, the higher its profitability may be, this fact exerts intense pressure on the management to have an adequate level of risk, proportional to the risk profile of the company. 

It is critical that managers have the skills, systems, methods and tools to administer and manage risk on a routine basis, these are the forms of risk management that should be used. 

The following are some of the forms of risk management in companies: 

Market risk management: It must prepare the company for fluctuations in the prices of the raw materials it uses and other resources. 

Credit risk management: It aims to protect the company from possible loss of income from credit sales. 

Liquidity risk management: Maintain the company's treasury with sufficient resources to meet business obligations. 

Operational risk management: Be attentive to external factors, such as the weather, legislation, the economy and others, as well as internal factors, such as strikes, lack of maintenance, etc., which can cause the paralysis of the company operations. 

Risk management applications 

The way forward requires adequate methods and tools to map critical processes, operations, identification and consequent reduction of potential damage from relevant risks is also an essential part of risk management. 

Monitoring and internal control activities should be adjusted and improved based on risk, another important process in choosing risk management methods is structured communication about business risks between the areas of the organization, this should be a priority in the administrator's agenda for the success of any program or project. 

Processes with a high level of compliance end up having more satisfactory results, this is because, when all the people committed understand what the purpose is and how they collaborate with risk mitigation, companies develop better. 

According to the ISO 31000 standard, risk management is the process that allows companies to identify, analyze, evaluate, and take action to control the risk situations to which they are exposed. These are adverse events that interfere if materialized, they hinder or affect the achievement of the objectives and can represent damages and losses. 

Simply, risk management is a codified way to mitigate the risks that will harm the future of the company. Every action we take has an inherent amount of risk attached to it. When we drive a car there is a risk of an accident happening on the road. However, this does not mean that the action we are taking is wrong – it simply means that we need to mitigate the risk. Therefore, we drive safely; we look in the side and rearview mirror to make sure it is safe to make a turn, we give turn signals to tell other vehicles where we will be going, and we make sure that the cars we buy are highly rated for passenger safety. 

Businesses must also manage the risks that are inherently attached to doing business. They take many steps to mitigate and manage as many of these risks as possible. This is where risk management comes in; risk management technologies act as mitigating factors that help businesses to minimize risks. 

There are many types of risks (operational, financial, legal, reputational, etc.), therefore, taking into account what this standard says, a large part of management has to do with quantifying them, and to do so it is necessary to define two elements: first, the consequence or impact that each risk will have and second, the probability that the risk will occur.  

Performing this quantification allows establishing a strategic action route with methods and tools to be able to prevent, control, and monitor them permanently.  

Thus, adequate risk management is one that is done continuously, considers the internal and external context of the organization, and creates value for it to achieve its objectives, improve its competitiveness and guarantee its continuity and sustainability, additionally, by applying the principles of risk management it is possible to convert one or more risks into opportunities. 

The Importance of Enterprise Risk Management 

Management or risk management should be considered as a strategic process in companies, regardless of the sector to which they belong or size because, as explained in the previous section allows, once identified and quantified risks, we must put inactions are taken to prevent and mitigate them so that, if one or more of these occurs, the damages or losses they generate are not too great.  

Likewise, carrying out a continuous risk management process with a clear focus, allows organizations to meet their business objectives since the different risks to which they are exposed are controlled and this also has a positive impact on aspects such as efficiency, reliability, and cost-effectiveness.  

Suppose, for example, that one of the main risks of a company dedicated to textile manufacturing is the appearance of musculoskeletal injuries in operating personnel, to mitigate both the probability of occurrence and the impact of this risk in the area in charge, which may be that of Safety and Health at Work, must propose and develop various actions and controls to prevent workers from being injured and thus avoid disabilities that impact productivity.  

Therefore, managing this risk and the others that may have, delay in the supply of raw materials, chemical risks, damage to machines, among others, allows the company to carry out all its activities in a timely manner and guarantee its operation to meet the objectives strategies effectively.  

The Benefits of Risk Management? 

Having an adequate risk management system in your company, in addition to the aforementioned, brings benefits such as: 

• Greater identification of obstacles and opportunities for improvement. 
• More efficient and successful processes. 
• Greater productivity and commitment by employees to meet objectives. 
• Greater ability to react in adverse situations.  
• Reduction of damages or losses generated when a risk materializes. 

• Lower costs and increase profitability.  
• Greater compliance with strategic business objectives.  
• Better level of satisfaction from employees, customers, and other stakeholders. 

As you can see, risk management is a key process in companies as it helps them better prepare to face those risk situations that their operation or the context in which they are involved. Their ability to do so helps to largely determine their success or failure because inadequate or insufficient management can even lead to the closure of the business. 

This is one of the best times for businesses to start using risk management technology as well, thanks to the drastic decrease in the costs of risk management technology over the past decade. There are many different solutions available, ensuring that most businesses will be able to find a solution that is a perfect fit for their needs. 

GRC tools have truly come of age in the past few years. There was a time when GRC solutions were clunky pieces of software which were hard to implement for businesses and cost millions of dollars to implement. Even though these solutions were so complicated, they did not really provide too much of a benefit and were only beneficial for very large businesses which had a lot of governance, risk, and compliance workloads. However, like all technologies, the price of GRC solutions has gone down, and their usefulness has increased significantly. That is why this is the perfect time for businesses to invest in GRC solutions.  

Decreasing Costs and Increasing Features 

GRC solutions were so expensive because they required a lot of hardware and maintenance to run. Any software solution requires maintenance as well as hardware if they are being implemented on premise. This is a very important distinction, and every business owner needs to understand why on-premises is no longer the smart approach to take for any sort of technology Implementation. Cloud solutions have significantly decreased the investment required for cutting edge GRC solution that quickly starts delivering ROI (return on investment).  

A decade or two ago, when a business wanted to implement a GRC solution, it would first have to pay millions of dollars to buy a solution which it can use. That was not the end of it, because there were a lot of other expenses attached to be able to actually use the solution which the company had already paid for. Once they had paid for the solution, they would also have to pay the implementation team which would travel from the vendor's office to their office in order to implement the solution. If the implementation was enterprise wide, it was common for companies to pay for a whole team to travel and stay in the same city where the company was located.  

Cloud solutions eliminate this problem completely. It is very simple to understand why such costs are eliminated by cloud solutions - since the solution is on the cloud, there is no reason for their team to have to travel anywhere in order to perform maintenance on the solution. It is common to have a single expert present on premise who will coordinate with the rest of the team that will be working from the vendors office but as businesses are becoming more comfortable with technology implementations many are completely forgoing such travel as well.  

GRC Implementations During the Pandemic  

The recent pandemic has also significantly increased the usefulness of cloud solutions. there is no safe way to implement an on-premises solution while maintaining social distancing. However, there are no such roadblocks to implementing a cloud solution because the engineers and developers that will be implementing the cloud solution can work from home easily since everything is being done on the cloud.  

This is also a major benefit for users of cloud solutions. The pandemic caused many businesses to shutter down because they could not ensure that everyone would be safe working from the office. Many governments across the world have also told businesses to ensure that as many employees as possible from home to stop the spread of the virus. Businesses that were using an on-premises solution for GRC suddenly found themselves in the inconvertible position of having all the right tools they would need to ensure risk and compliance were being fully managed but being unable to use those tools because they were not working from the office anymore.  

It is also much easier for businesses to implement cloud solutions because there is no hardware required to implement a cloud solution. When an on-premises solution is being implemented the business must first by the computers, the servers, and the network hardware that will be required to make sure that the solution can work efficiently. Cloud solutions can be used from within any browser on any computer connected to the Internet, this completely eliminates the need of installing dedicated servers or natural infrastructure to use the cloud software. It is expensive to maintain the network infrastructure and hardware for businesses which is why it is important that there are no such costs attached to cloud solutions.  

All these factors contribute to the usefulness of GRC solutions for businesses of all sizes. These solutions are easier to implement the newer and also cost lower than they have ever cost before what is the same time delivering much more value than older solutions because the technology behind them has advanced. It is also possible now for businesses to trial GRC solutions by purchasing a subscription to a cloud solution for a limited time or only purchasing a subscription for a specific tool within a full GRC solution. This is a great way to see whether the solution is right for the company and will be able to generate the return on investment the business needs.