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What Does Risk Transformation Mean For Financial Services?

Posted by Picture of Team Origo Team Origo

In a fast-changing world, risk transformation is a core competency for financial institutions, broadly covering the ability to deal with market shifts, withstand challenges, and continuously evolve and accelerate as disruptions arise.

As the financial services industry changes, the skills and competencies required for effective risk management are increasing. New initiatives around sustainability, equity and resilience need tools and methodologies beyond those traditionally employed to mitigate risk.

Many of these challenges go beyond the quantifiable approaches used to assess capital and balance sheet threats and are operational in nature, requiring institutions to consider how they deliver services to remain compliant, relevant and competitive.

Failing to respond to these pressures can expose institutions to financial losses, regulatory censure, reputational damage and service disruptions. Secondary effects can be less immediate,  but equally damaging in the long term, such as reduced sales or accelerated disruption by other market participants due to lost trust.

Here we examine the changing nature of risk and how financial institutions can leverage new processes and tools to reduce their exposure.


The risk shift

While financial institutions are well-experienced in managing risk, the nature of the threats facing the industry has shifted over the last two decades. Whereas once institutions were mainly concerned with financial risks - those reflected in their balance sheets and risk-taking activity - many have shifted their focus to non-financial risk (NFR).

NFR is diverse, which makes it by nature difficult to prepare for. Threats can include changes in consumer or business expectations, regulatory shifts, external attacks such as fraud or cybercrime, or events such as geopolitical events or global pandemics.

Financial risk necessitates a focus on decisions or investments being made and analysing the probability of their success or failure. On a decision by decision level, each could be assessed, rated and placed in the wider contexts of the institution’s overall financial position. NFR is different.

Risk transformation for NFR requires proactive action based on what might happen and to minimise losses or exposure arising from external forces. This includes focusing on the ‘how’ of an institution's operations including how they work with clients, how they manage and store data, how they position their services in a changing market and how they future-proof their operations for a more sustainable world.


What are the risks facing financial institutions?

Non-financial risks for financial institutions are similar to those facing other industries, however, given the core nature of the industry these businesses can experience increased pressure from consumers and regulators when it comes to compliance.

Key challenges include:

  • Regulatory risk from changing legislation focused on protecting consumers and economies from emerging issues, such as climate change, ESG and data compliance.
  • Digital risk from cyber crime, including extortion, theft, and fraud, as well as technological failures and data breaches. 
  • Business model risk in light of the shift to digital banking services and challenges from challenger institutions.

The key issue for many large institutions is that existing systems are set up to quantify, contextualise and mitigate historic risks – those that have been seen before. Given the rapid development of new technology and policy in areas such as sustainability, cloud data management and digital banking, these systems lack the agility to adapt proactively to new threats.

A key example is client communication and record-keeping. Many institutions still rely largely on paper to manage engagement with customers, with 72% of customers still receiving printed documents even if they use a banking app or online banking service as well, despite widespread commitments by financial institutions to hitting green targets.

Working with physical documentation also hampers the speed of service that clients expect in a digital-first economy, and lacks the robust security and visibility of online data management.


How can financial institutions transform effectively?

To keep pace with market changes, financial institutions need systems and approaches that can evolve with their market context in order to remain relevant. This requires investing in tools and creating structures to leverage these across organisations.

Change-ready software

With public policy and consumer sentiment subject to rapid development, financial organisations need to prioritise systems that can adapt quickly and be implemented with minimal cost and lead time. These must also be secure and integrated across organisations to minimise disruption, including:

  • Cloud data storage and management
  • API-first systems and connectivity
  • Automation to manage data flows between interfaces and platforms
  • Training for teams and customers to engage with new technology quickly and efficiently.
  • Systems such as Unipass Mailock that are easily deployed and integrated with any infrastructure, allowing systems to evolve in line with new platforms.

Structural resilience

Viewing change as a continuous challenge, institutions need to be able to roll out changes rapidly across teams without being stuck in silos and red tape. By creating cross-functional teams across core capabilities including operations, customer support, legal, finance, and other functions, organisations can create holistic change plans that connect value delivery across relevant departments and avoid blockers.

Proactive planning

The fastest way to react to market changes is to focus on change at the earliest opportunity. By creating frameworks around common goals, terminology and values within the business, organisations can identify preventative actions and proactive investments to prepare the business for future challenges. 

Initiatives can have both short and long-term impacts, aligning immediate needs with long-term compliance and efficiency. For example, by moving to an end-to-end client and broker communication solution that can manage internal and external stakeholder communication and transfer data securely between parties without paper, businesses can increase speed and efficiency while also targeting long-term sustainability goals.

Unipass Mailock is a tailor made secure email solution for financial services businesses, allowing providers, advisers and customers to communicate securely using a single system:

  • Stakeholders can send sensitive documents and forms to customers over an encrypted channel, directly to their inbox.
  • All customer replies are fully encrypted, including sensitive documents, which are protected on delivery and return.
  • Move from inefficient paper-based systems to secure, centralised, paperless digital communications.
  • Unipass Mailock integrates with Unipass identity, which is used by 8 out of 10 financial advisers in the UK.


Risk transformation for long-term resilience

With financial and consumer markets likely to remain dynamic and disrupted for some time to come, the ability to effectively manage, mitigate and adapt to changing risk parameters will be a key determiner of success in the market. Financial organisations can position themselves for future success by investing in solutions that provide long term value for stakeholders across the value-delivery journey, improving retention, compliance and efficiency.

Unipass Mailock is a secure email solution with risk-prevention hardwired, and has been specifically designed for the financial industry. By leaving paper communications behind, institutions can implement end-to-end secure communication channels for internal and external stakeholders to move data, documents and gather information securely. Unipass Mailock digitises key workflows, helping businesses to:

  • Improve internal and external communications efficiency
  • Maintain secure audit trails for sensitive interactions
  • Comply with security and environmental regulations
  • Drive cross-functional alignment around key processes

To find out more about how Unipass Mailock can reduce risk for your organisation contact us for a demo.


Originally posted on 05 07 22
Last updated on July 28, 2023

Posted by: Team Origo

Articles and resources posted by Team Origo have been produced by experts in financial services technology from Origo Services in collaboration with the digital identity specialists at Beyond Encryption.

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