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Editor’s blogJune 6 2023

How can technology aid the modern chief risk officer?

Having one enterprise-wide system to address the litany of risks that a CRO has to deal with may be a pipe dream, but emerging technologies could make the job a bit more manageable.
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How can technology aid the modern chief risk officer?

Undoubtedly, chief risk officers (CROs) have one of the toughest jobs in a bank. Our June cover story highlighted the myriad of new risks that that now fall within the CRO’s remit, including climate change, culture, cyber, geopolitical and reputation risk.

And while many institutions have risk management systems in place to assess traditional areas, such as credit, liquidity and market risk, the legacy systems don’t cover the non-financial risk areas. But, even more critically, they are not fit for purpose in today’s complex environment.

“These legacy systems often lack the amount of detail that regulators and investors require from a bank. Moreover, they are costly and often operate on ancient technologies that are not ready for the current expectations,” says Jeroen Van Doorsselaere, vice-president of global product and platform management, finance, risk and regulatory reporting at information services company Wolters Kluwer.

Karina McTeague, currently a non-executive director and risk adviser, and former CRO at Visa Europe and Lloyds Banking Group, North America, as well as a former Financial Conduct Authority supervision director, added that the risk management systems that are in place today are generally cumbersome, not user friendly.

[legacy systems] are costly and often operate on ancient technologies that are not ready for the current expectations

Jeroen Van Doorsselaere

“They have to be simple to use, because they should be used by the first and the second line of defence,” she said. “They should be proactive, as well as reactive, and provide insights as well as hindsight. The risk community doesn’t generally have those well-matured systems yet.”

In addition to being cumbersome, many large institutions have various disparate systems that have to be knitted together to give an integrated data-driven picture, which means that the insights are not being delivered in real time.

But new technologies are emerging to advance risk management and are also changing the nature of the CRO’s role, according to Evgueni Ivantsov, chairman of the European Risk Management Council. For example, the use of artificial intelligence and machine learning, while still in the early stages, have the potential to enormously improve risk decision-making.

“But this requires the CRO to understand new complex models, tools, and data, and, more importantly, understand how to maintain a delicate balance between model outputs and human judgement in the decision-making process,” he said.

This could be a great space for an innovative and agile regtech firm to apply emerging technologies to solve the CRO’s pain points, as the market opportunities seem substantial. Ms McTeague, for example, is on a product advisory board for a risk management start-up.

“My advice to them was not to restrict their strategic vision to small firms, because some large institutions are struggling with complex systems, which aren’t necessarily as smart, efficient and effective as they should be,” she said.

Joy Macknight is editor of The Banker. Follow her on Twitter @joymacknight

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