The Importance of Adding A.I. to the Risk Management Framework of Banks

The risk management department within the banks is responsible for managing and mitigating the risks that affect the bank. This department is staffed by risk management experts with niche expertise and qualifications that give them the knowledge and experience required for such a critical task. Risk management technology gives banks the option of adding an extra layer of protection around their risk framework. Instead of relying purely on the vigilance of the risk team, banks are now opting to rely on a combination of their vigilance and automated risk monitoring.

This highlights a highly underrates aspect of risk technology. Risk technology is often assessed on the bases of efficiency alone, but it is important to remember that risk tech does a lot more than just increase efficiency.

The Efficiency Perspective

Assessing risk management technology based on the efficiency improvements, it can bring about in risk management is a great way to do a cost benefit analysis on a technology implementation. Modern risk management framework and its solutions automate large parts of risk management and streamline the parts they do not automate. This enables the existing risk management team within the bank to increase their productivity exponentially.

The increase in productivity affects not just the efficiency of the bank’s risk program, it also changes the cost equation for risk management. The increase in productivity means that the bank can now achieve more in the realm of risk management while spending less resources in it, since all the risk processes are now more efficient than before.

The increase in efficiency is seen most significantly in areas where full automation has been achieved. Risk monitoring is a great example of the power of risk technology; a process that previously took considerable yearly, semesterly or quarterly but now it can be done in real-time.

However, there is another case to be made for risk management technology – dependability.

The Vulnerability Inherent in Manual Risk Management

When we look back at the way offices operated a few decades ago, we are forced to wonder how they got anything done in time. Imagine having to manage risk without having access to computers or networks. Each document needed to be types manually, all communication was slow, and all assessments and analytics had to be done on paper as well. A few decades from now, people looked at the current way of doing things and wonder the same. Not just because of efficiency, but also because of how vulnerable risk management is when handled manually.

Risk management is considered a critical function not just for banks but for other businesses. However, a bank is much more complicated than most types of businesses. Most manufacturing and sales related businesses need to focus mostly on their sales, but a bank has hundreds of risks needs to manage. When the management of all these risks is being handled purely by the vigilance of the risk management team, there is bound to be an error or misjudgment which will be costly for the bank.

The problem isn’t that the risk management team will make a mistake – the problem is that there is always the possibility of making a mistake inherent in all risk management tasks. Humans cannot repeat the same task again and again while guaranteeing that their performance will be the same each time. AI Systems, however, specialize in ensuring that the same processes are followed in the same way, even if the process is carried out millions of times.

Going Beyond Efficiency

Efficiency will always be a strong selling point for risk management technology. However, there is a much simpler selling case to be made as well – that risk management technology keeps the bank safer. Risk management solutions and tools are a weapon for the risk management team that allows them to work much faster, but they are also shields for the bank because they provide a layer of automated AI protection around the bank’s risk and compliance processes which simply did not exist before.

The ability to detect emerging risks, the power to predict risks for the next quarter, the speed of real-time risk assessments, the instantaneous notifications about risks – all these features don’t just increase the efficiency of existing processes; they also add a new layer of operational and strategic protection to the financial wellbeing of the bank.

A Competitive Advantage for Smaller Banks

AI based Risk management technology has now become mainstream in the largest banks in the country, but its adoption has been slower in smaller banks because the initial few solutions cost millions of dollars to implement and maintain. However, the availability of cloud solutions means that smaller banks can now reap the benefits of next-gen A.I. powered risk management technology easily.

This provides a great opportunity to gain a competitive advantage for local banks because most of the competition still does not use modern risk management tech. The first local banks that use risk management tech will have more information about market and external risks and will thus be able to outperform other banks using the business intelligence generated by risk technology.

Wondering what it will cost to implement risk management technology in your bank and what benefits it can provide? Get in touch with our risk experts for a demonstration.