For those in operational risk management, it seems as if there’s always a new challenge to overcome. Outside of the normal process, people, and systems risks, operational risk managers are increasingly faced with external factors around geopolitical, regulatory, or technological risks. Beate Born, Executive Director of Risk and Regulatory Management at UBS, believes that with so much at stake, it’s important to anticipate changes in the macro-environment before they emerge – regulatory developments being one of the most important ones.
We sat down with Beate before her presentation at this year’s virtual Global RegTech Summit to learn what, exactly, firms can do to reduce risk and navigate this ever-evolving industry.
Ask Forward-Thinking Questions
For a start, Beate encourages firms to ask the right questions. “As risk managers, we need to have our finger on the pulse and decide what’s going to impact us the most now and in the future,” she says.
This means, for example, understanding the reasoning behind regulations. Some questions to consider: What’s the spirit of the regulation? Why does the regulation exist and what is the regulator trying to accomplish? What was the event that led to this regulation? “When you can answer these questions, you’ll have a better sense of how best to implement the new rules and what potential new regulations might entail.”
Beate stresses the importance of looking at the bigger picture to anticipate the potential impact of external events. From a political perspective, it’s figuring out what Brexit could mean for current EU market access and potential equivalence provisions, or what a potential re-election of Trump could mean for US sustainability regulations. From a tech perspective, it’s an awareness of the risks associated with the fourth industrial revolution and the connected tech disruptions in AI, robotics, data privacy, and security, to name just a few.
Make Room for Innovation and Focus on Your Strengths
According to Beate, simplicity should be at the core of every firm’s mission. Firms are operating in a complex global market, and they need to understand and focus on their strengths.
Many large financial services firms develop their own tech in-house, but Beate predicts this will change as more firms start to embrace external RegTech providers in the course of a segregation in the financial services value chain. Embracing external providers, Beate explains, can lead to more growth in specific areas. “The RegTech firms are generally already more focused on a particular service which gives them the ability to go into depth rather than breadth. Large institutions will start to take advantage of being able to simplify their own operations by bringing in external providers to do their regulatory admin work. This will also free up more space for much-needed innovation.”
Implement RegTech Slowly
The conversation between financial services firms and RegTech providers hasn’t always been productive. For the relationship to work, Beate suggests potential buyers to be more open-minded and RegTech providers to start with understanding the problems firms are trying to solve before developing and pitching products.
When it comes to implementing RegTech solutions, Beate suggests that firms take it slow. “When you bring in an external solution, have a small piece of a regulation covered first so that the RegTech firm can learn your organization over time and you have a chance to monitor and mitigate the risks that come with such engagements.”
This approach allows firms to reap the benefits of RegTech solutions at a comfortable pace, while giving RegTech providers the appropriate time to better understand their clients’ needs.
The Future of the Financial Services Industry
As the world recovers from COVID-19 and prepares for the ‘new normal,’ some of the old challenges like Brexit will remain, and some new ones will take center stage. With these challenges come opportunities to learn, not just for operational risk management experts like Beate, but for all players in the financial services industry.
Beate’s big prediction? A breaking up of the value chain. “Going forward, the financial services industry is going to break apart,” Beate claims. “Instead of one global provider that operates in every country, serves every client, sells every product, and implements every regulation themselves, we’ll have more focused players that specialize in their areas of expertise.” This will be accelerated by tech advancement, increased cost pressures, and ever-evolving regulatory landscapes.
Ultimately, firms can look forward to more change in the future. How well operational risk managers plan for what’s to come will determine their fate.
About Beate Born: Beate (van Loo) Born is Head of Strategic Projects at UBS Wealth Management in Zürich. She runs global regulatory initiatives (e.g. MiFIDII implementation), large platform projects and ad hoc responses to geopolitical events (e.g. Brexit). After 17 years in operational risk and regulatory management she recently set a professional and academic focus on sustainability and data in banking. Beate is a member of the EDM council’s ESG Committee and the Women in Data network, has completed various academic degrees and is currently obtaining a Master’s degree at the University of Cambridge Institute for Sustainability Leadership. Her research focuses on the alignment of ESG standards, regulations and data.
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