01 Feb 2021 Ankit Chadha

7 Trends Disrupting The Future Of Financial Risk Management

Financial Risk Management| TRC Corporate Consulting

The landscape of operational risk and financial services risk management, including financial risk management, is shifting rapidly. Each day’s news carries fresh indications that the future is on its way, and often it feels like there are new threats and reaction tactics around every corner. There are already evident the outlines of opportunities and potential challenges for risk leaders, indeed, all business leaders.

And what are certified financial risk managers and leaders supposed to plan for? Identifying these seven developments that have the potential to transform the risk landscape for businesses around the world dramatically and change how they react to and manage risk, including financial risk analysis for liquidity risks and risk management.

What you’ll see is that the emergence and implications of risks, including liquidity risks and improper financial risk management, where the very essence of the discipline of risk, are changing. The good news here? The strategic conversation about risk is also shifting. For today’s leaders, risk can be used as a tactic to build value and reach higher performance levels. It’s no longer to fear, minimize, and avoid something. For each pattern, explore the factors, possibilities, risks, and real-world examples. And ask yourself: can your company leverage these patterns to be even more robust, more resilient?

Risk Management: Organizations’ Responses To Risk Transitions 

  1. Cognitive technologies improve human decision-making and are easily accessible to vast volumes of data, supporting human-led risk management teams.
  2. In today’s hyper-connected environment, organizations can deploy pervasive risk controls in order to track and manage risks for better finance and risk management promptly as a result of their goods, services, and marketing strategies.
  3. Behavioral science indicates risk insights that can fuel efforts to clarify perceptions of risks such as financial risk analysis or liquidity risk, affect risk behaviors, and enhance decision-making related to risk.
  4. As leading practices, diligence and resilience reinforce prevention, organizations recognize that 100 percent risk prevention is not possible, so it will spur growth in diligence (detecting risk events as they occur) and resilience (containing and minimizing the effect of risk events).
  5. Risk transfer broadens in reach and application, along with financial risk management instruments, such as insurance, contracts, and new financial instruments, are increasingly being used by companies to shield them from a broader range of hazards, including cyber threats, climate change, geopolitical challenges, crime, market disturbances, and more.
  6. The marketplace will reward companies that take on strategic, high-risk strategies, even though they fall beyond the reach of current legislation. After all, innovation leads, regulation follows.
  7. When risks become more observable and concrete, companies would better assess a real upside benefit for risk and foster an acceptable degree of risk-taking as risks can change into a success enabler.

How Is The Onslaught Of Risk Transitioning? 

As companies collaborate more closely with a broad number of external stakeholders, particularly ‘crowds,’ they will rely heavily on them to collectively define, manage and minimize risks, including financial risks and enable effective financial risk management. Consequently, the interconnected economy demands collaborative finance and risk management.

Disruption influences the executive agenda as the persistent threat of disruption arising from new technology, changes in the business model, and changes in the environment will push executives to make crucial strategic decisions to drive organizations’ performance. Especially for certified financial risk managers, this will help them make strategic decisions with practical financial risk analysis.

In order to thrive in a hyper-connected environment dominated by mobile devices, social media, and evolving public standards, leaders can efficiently and effectively resolve accelerated, exacerbated threats to the reputations of their organizations.

Risk Controls Become Pervasive: Financial Risk Management 

As risk monitoring and compliance points, intelligent technologies (also known as the Internet of Things) are equipped with a range of sensors, communications, and computing capabilities support. However, not everyone can invest in such hefty technologies. Then how do organizations recognize risk incidents, obtain critical risk insights, and even take urgent environmental action? Opt for consulting firms with apt finance and risk management services who have the right expertise to handle and formulate pervasive and complex risk management procedures, including financial risk management. Such certified financial risk managers specialize in risk management and bring years of experience that cannot be automated.

What Forces Are Driving This Trend? 

Decreasing costs, declining size, increased digital accessibility, rising usage on the Internet of Things, and increasing acceptance of wearables in the workplace surely have enabled organizations to leverage advanced analytics. 

However, it is still crucial to ensure effective monitoring strategies in networked environments to avert any risks, including problems arising out of user access or data breaches. For the same, while organizations leverage advanced technology, it is essential they consider hiring a team of expert risk management consultants, including financial risk management consultant and operational risk management professionals, to ensure effective supervision.

Finance and Risk Management: What Are The Opportunities? 

  • Improve operations and strengthen risk-related decision-making, including financial risk management, by incorporating systemic risk controls in aspects such as internal audit, management of the supply chain, finance, cybersecurity, and testing of controls.
  • Reduce the risk of cybersecurity and fraud by using supervised procedures, even for automated tasks, to incorporate identity access capabilities that are context conscious.
  • Develop traceability from across the supply chain, particularly in industries sensitive to safety, such as food production and pharmaceuticals.
  • Implement effective tracking and reporting enforcement by integrating risk controls, including financial risk management controls, into business processes.
  • By analyzing consumer actions through data streams, organizations can handle risks introduced by customers.

Finance And Risk Management: What Are Potential Threats And Pitfalls

  • Increased cyber risk exposure as business processes are more extensively dependent on the Internet of Things.
  • Increased the availability of risk disclosure data in areas that were previously considered secure, resulting in new risk management responsibilities or liability, even for financial risk management of liquidity risks.
  • Employees, consumers, and business associates are worried about their privacy issues due to systematic surveillance.
  • Increased complexity in processing relevant data, considering the enormous amount of data produced.
  • Prevention complements diligence and resilience as the leading activities.

Methods of risk management, be it for operational risk or financial risk management, can never be foolproof, and growing investments in preventive procedures frequently produce only small benefits along with unwelcome side effects such as slowing down innovation. 

In order to focus on awareness (detecting trends that may suggest or even predict risk events) and resilience (the ability to contain and reduce the effect of risk events quickly), organizations are widening their approaches. Actions such as these can be expected to increase in importance: tracking emerging risks, detecting business process anomalies, handling third-party vendor stoppages, and planning for workplace disturbances related to emerging risks.

Contact our team at TRC Corporate Consulting to find more about our risk management services, including financial risk management. Our financial services risk management team has extensive experience in handling risk management for all types of organizations!