Keeping a pulse on the future is a critical component of positioning your organization for success. It’s something we all must do.
I recently contributed to a report by Finextra to help financial organizations prepare for what’s to come. The Future of Regulation, Risk Management, and Compliance 2023: How to Prepare for the Looming Regulatory Storm compiles the priorities of financial industry experts as they grapple with unprecedented technological advancements and the regulatory reactions they garner. The latter part of the title alludes to the regulatory actions many expect to see in 2023 and beyond, actions which will likely complicate how all this new technology is deployed.
The prevailing theme in the report is disruption. Market-led trends, emerging technologies, regulatory updates, and other evolving forces have collided to create a complex landscape for financial institutions to navigate.
Experts agree that the solutions to these challenges will likely come from technology. The pace of technological innovation is rapid, and the resulting products and services are impressively capable. That doesn’t mean the technology itself is without its own set of challenges, though. There are a few areas that stand out to me as focus points.
As products and services become increasingly digitized and consequently produce large amounts of data, the need for data security grows. It is vital for data to be housed securely so that companies can stay competitive by seeking reinvention (a process which can introduce risks). Digital environments should be designed to protect data from breach or fraud, no matter the state of the data. Gaps in protection not only present catastrophic risk, but also undermine client trust.
Transferring data to the cloud has helped financial institutions detect risks and scale up. Cloud migration has made it easier to aggregate data, run analytics, and connect the dots that contribute to a risk factor. Plus, it has made it easier and more cost effective to scale horizontally or vertically to help connect those dots faster, leading to more reliable systems with fewer false positives. In turn, this leads to faster, better decision-making.
Financial institutions are using AI to help manage various types of risk, though there has been significant focus recently on the potential risks of advanced AI tools. While these concerns are legitimate, it is equally important to focus on the ways AI can manage risks and assist firms in tackling threats and challenges.
Firms are mitigating cyber risk by using AI and natural language processing systems to automatically detect threats, manage logs, and mine data, ultimately helping companies minimize risks to the balance sheet. Even when it comes to global issues, AI is helping combat terrorist financing. As financial firms look for innovative ways to address threats and mitigate risk, AI technology could be the solution.
At the end of the day, risk management is a big task. I believe technology—tools like AI—offers tremendous benefits to firms, helping them safely and efficiently address risks. AI can analyze huge datasets and deliver actionable insights, empowering us to make better decisions faster.
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