Why Digitization of Risk and Compliance Management is Necessary for the Financial Sector

The financial sector worldwide received a widespread impact due to Covid-19 and changing socio-economic conditions. Banks, insurance companies, and other financial institutions must respond to issues and challenges covering policy terms, transactions, disruptions, and cyber claims for a distributed workforce.

By necessity, the financial sector must invest in risk and compliance management technology to streamline its operations and improve its digital interface. Such systems make their operations smooth, address security and enable remote teams.

Unfortunately, many financial firms and services have not kept the digitization of risk and compliance management at its pace. Consequently, they fail to remain updated with the regulatory practices of the changing world.

So, what does it mean to digitize Enterprise Risk Management (ERM), and what results if we fail to transform existing legacy programs?

Digitization Explained

The world today runs on data constructed of bits and bytes that make spreadsheets, word documents, emails, and other digital artifacts. Digitization means transforming that data into a categorized form to extract analysis and insights. It is about automating all the manual processes and using that information to ensure it runs with minimal human intervention. The combination of insights and automated procedures improves decision-making and accuracy of operations.

Surprisingly, many financial institutions with large-scale business processes and key services still run daily risk and compliance activities on manual systems. They do not talk about solutions that turn insights into business enablers.

Efficiencies Due to Digitization

Risk Management Digitization

Manual management of risk controls makes it difficult to perceive the bigger picture. Reports that reach top management through manual channels may become outdated when received. Additionally, there might be limited abilities to find relevant data manually for follow-up.

Digitizing risk management enables categorization that identifies crucial target areas for addressing or improvements. The step also provides confidence to management about the information whenever they need to help them make accurate decisions.

Digitizing Compliance

Digitizing compliance management and control testing automates these processes enabling managers to focus on value-added activities. Becoming a partner in business activities and spending time on analysis gives valuable insights into changes. These internal or regulated insights give more value than chasing an email thread.

In an industry where regulatory changes can happen anytime, there is a need for automatic integration directly into compliance systems. The effectiveness occurs when the organization does not miss any essential regulatory change and remains updated.

Digitizing Incident Management

Incident management is an essential part of financial activities that enables handlers to highlight issues and improve their products or service. Individual incidents might be easy to handle; however, identifying systematic issues or trends becomes difficult if reports are compiled manually. Incident management digitization supports identifying common causes to shape the future or prevent its recurrence.

Digitizing Third-Party Risk Management

Depending on the product or service offered, the financial sector employs the support of third parties to handle crucial management procedures. There is an increased focus on ensuring the effective presentation of risks by third-party services. These include managing cyber security, handling disruptions, service licensing, and understanding regulatory laws.

Manual management and handling of these operations may become tedious with chances of human error. Single-point solutions may help but are not a viable option for large-scale businesses. Broader enterprise risk management systems provide insights not only to individual suppliers but also enhance the effectiveness of third-party processes.

Combining Them

A standardized digital system allows aggregation and reporting across all compliance and risk management elements. Digitization in the financial sector ensures everyone uses the same data, thus improving efficiencies. It offers an ability to quickly identify and act on potential discrepancies and have total control over findings and weaknesses. Automated risk and compliance management software clears accountability and tracks issues through early warning indicators before they arise. Interested in seeing how your organization can benefit from digitized risk and compliance management? Get in touch with our experts for a demo of Predict360, the American Bankers Association (ABA) endorsed solution for risk and compliance.