Name: Secure banking futures - Best practices in risk management for a digital era
Uploaded: 2023-12-08T12:29:39.859Z
Duration: 784.76
Description: At the RiskMinds International conference 2023, we get an exclusive insight into the best practices in risk management for future banking . Discussing this are Hanna Sarraf, Senior Risk Executive, Banking.

Secure banking futures--Best practices in risk management-for a digital era.mp4

Secure banking futures - Best practices in risk management for a digital era.vtt

ENGLISH

{{00:00:01}}
I

{{00:00:32}}
think risk management is
transforming in several ways

{{00:00:35}}
to adapt to an age of continued
disruption, uncertainty, and change.

{{00:00:42}}
And the transformation of the risk
management function is happening

{{00:00:44}}
along the sort of three dimensions.

{{00:00:46}}
There's an expanded role of the risk
management function and the CRO in

{{00:00:51}}
particular, whereas risk management
is no longer the sole responsibility

{{00:00:57}}
of a function that looks at inherent
risks in the business model the things

{{00:01:02}}
that we call the known that are part
of you doing business, but in fact it's

{{00:01:07}}
transforming and expanding in its role
to look at the unidentifiable risks.

{{00:01:12}}
These are the emerging risks that
we call Known unknown that we know

{{00:01:16}}
they are there on the risk radar.

{{00:01:18}}
But we don't know quite how to
measure them or quantify them.

{{00:01:22}}
But yet if they occur they could have a
significant impact on the viability and

{{00:01:26}}
sustainability of the business model.

{{00:01:29}}
So there's an element of elevation
of the risk management function to be

{{00:01:33}}
more strategic in nature to support.

{{00:01:36}}
The strategic steering of our organization
as well as building the resiliency

{{00:01:41}}
infrastructure to cope with those events.

{{00:01:43}}
On the second point, it's
transforming in terms of remit.

{{00:01:46}}
So the remit of risk management
function is becoming broader.

{{00:01:50}}
It's no longer the sole
responsibility of a function or

{{00:01:54}}
a department in an organization.

{{00:01:56}}
It's actually becoming an
enterprise wide responsibility.

{{00:02:00}}
That means all employees and
stakeholders in an organization have.

{{00:02:05}}
a responsibility to
identify and manage risks.

{{00:02:10}}
And that requires a culture of risk
awareness and a shared understanding

{{00:02:15}}
of an organization risk appetite and
limits across the three lines of defense.

{{00:02:20}}
We're seeing more and more focus and
greater role for the first line to

{{00:02:25}}
play and the second line more on.

{{00:02:28}}
reviewing and challenging and
overseeing the first line when

{{00:02:31}}
it comes to risk management.

{{00:02:33}}
And the third and final aspect of
transformation, it's really the

{{00:02:37}}
capability of this management function
which is leveraging the advancement

{{00:02:41}}
in technology and data analytics.

{{00:02:44}}
to support its capability
to identify, measure, manage

{{00:02:48}}
risks across the value chain.

{{00:02:50}}
So things like artificial intelligence,
machine learning these are all new

{{00:02:56}}
technologies being used currently
with risk functions and applied on

{{00:03:01}}
large amount of data that we gather.

{{00:03:04}}
To allow us to detect patterns, to
detect trends, and this particularly is

{{00:03:07}}
relevant in the case of things like money
laundering, fraud as well as creditors.

{{00:03:13}}
But also the capability enhancement is in
the way we measure, in the way we look at

{{00:03:19}}
risk from a forward looking perspective.

{{00:03:22}}
So rather than focusing on the past.

{{00:03:26}}
as a good representation of the future.

{{00:03:28}}
We look forward and we come up with
a scenario and we have this scenario

{{00:03:31}}
mindset to to be able to quickly
understand a certain aspect of

{{00:03:37}}
vulnerability of the business model.

{{00:03:38}}
So in summary, risk management
is transforming to becoming more

{{00:03:42}}
strategic, more enterprise wide,
data driven, and forward looking.

{{00:03:48}}
And that would allow organizations,
particularly banks, to navigate

{{00:03:51}}
uncertainty, as well as coping
and adapting to changing business

{{00:03:55}}
and economic environments.

{{00:04:03}}
I think when confronted with
unanticipated stress, such as global

{{00:04:08}}
pandemic, or a sharp, sudden increase
in interest rates or, a breakout war

{{00:04:15}}
what you find is that organizations
that have invested in resilience

{{00:04:19}}
capabilities, they tend to enjoy
better outcomes than those who didn't.

{{00:04:25}}
And I can explain here a little bit in
terms of resilience here the ability

{{00:04:29}}
of an organization to anticipate
threats and reduce vulnerabilities,

{{00:04:34}}
ability to absorb the shock, ability
to quickly recover from a stress event,

{{00:04:40}}
and then lastly, ability to adapt.

{{00:04:43}}
to a post shock environment.

{{00:04:45}}
If you look at those four
dimensions, risk management has

{{00:04:47}}
a fundamental role to play here.

{{00:04:50}}
So number one in anticipation
capabilities, things like

{{00:04:53}}
threats and vulnerability
analysis of the business model.

{{00:04:55}}
Do we understand what are the
top big ticket risks that could

{{00:04:59}}
threaten the viability and
sustainability of the business model?

{{00:05:02}}
Do we have horizon scanning capabilities
that allow us to detect what are

{{00:05:07}}
the emerging risks happening?

{{00:05:08}}
And if we do have those emerging risks
register, do we have an assessment

{{00:05:14}}
approach to look at those to understand
the likelihood as well as the impact

{{00:05:18}}
of those risks happening and what
does it do to our business model.

{{00:05:22}}
And then lastly, what sort of
early warning indicators we have

{{00:05:26}}
to help us quickly take action
before things materialize.

{{00:05:29}}
Those anticipation capabilities,
they help you ultimately to be

{{00:05:33}}
prepared for when a stress event
is going to happen and impact you.

{{00:05:38}}
The second sets of capability is when
the stress event happens, have you got

{{00:05:42}}
sufficient financial resources to cope
and absorb the level of unexpected loss

{{00:05:51}}
without having a long lasting impact
on your performance as an organization?

{{00:05:55}}
And here we're talking about the context
of banking, have we got sufficient equity

{{00:05:58}}
buffers, have we got sufficient capital
buffers to cope with the unexpected loss?

{{00:06:02}}
without necessarily impacting the
provision of regular functions

{{00:06:06}}
as a banking institution.

{{00:06:08}}
The third set of capabilities
is around the speed of recovery.

{{00:06:12}}
You could anticipate risks, you could
absorb a shock, but how quickly we

{{00:06:16}}
could recover from the stress event?

{{00:06:19}}
How quickly we could deploy certain
Measures to allow you to restore or

{{00:06:24}}
recapitalize if you need to recapitalize
or restore your liquidity buffer if you

{{00:06:28}}
need to restore your liquidity buffer.

{{00:06:29}}
And that is ultimately how prepared you
are to go through a crisis situation.

{{00:06:35}}
So for that, lots of capabilities are
required, like reverse stress testing,

{{00:06:40}}
and different idiosyncratic stress.

{{00:06:43}}
market systemic stress, combined
stress, but also those processes

{{00:06:48}}
we call internal capital adequacy
process or internal liquidity process.

{{00:06:52}}
These are all geared towards ensuring
an organization, particularly a

{{00:06:56}}
bank, is prepared to go through an
unexpected loss situation and recover

{{00:07:04}}
with the recovery tools that are
typically in your recovery plan.

{{00:07:08}}
and also Operational
Business Continuity Plans.

{{00:07:11}}
The last set of capability is
about The ability to adapt to

{{00:07:16}}
the post shock environment.

{{00:07:19}}
What, strategically speaking,
is your business model rigid?

{{00:07:24}}
Or is it flexible to cope with probably
new structural shifts that were

{{00:07:28}}
triggered by the crisis situations?

{{00:07:31}}
We've seen through the pandemic, there
were structural shifts in the economy.

{{00:07:33}}
We've seen structural shifts
in consumer demands, consumer

{{00:07:36}}
behavior, and the way they would
like to consume financial services.

{{00:07:40}}
The question is, to what extent
organizations have adapted to this

{{00:07:44}}
new environment to what extent the
digital agenda has been fully deployed

{{00:07:49}}
and embedded to cope with those
advancements in technology and therefore

{{00:07:54}}
to what extent you're able to adjust
your business model quickly to adapt

{{00:07:59}}
this to this new business environment
in order to thrive and succeed.

{{00:08:03}}
So in summary there are four sets
of capabilities that Bax can tailor

{{00:08:08}}
their resilience investment to.

{{00:08:10}}
There are anticipation capabilities,
there are loss absorption

{{00:08:14}}
capabilities, there are recovery
speed capabilities, and lastly, it's

{{00:08:20}}
about adaptability capabilities.

{{00:08:29}}
Thank you.

{{00:08:30}}
I think the market is likely to
differentiate high performing

{{00:08:33}}
banks based on their viability,
but also on their business model

{{00:08:39}}
sustainability over the long term.

{{00:08:41}}
And for a bank to be viable and
sustainable over the long term, it needs

{{00:08:45}}
to gain a meaningful edge on resilience,
but also to remain economically efficient.

{{00:08:54}}
And I think the last element here,
economic efficiency, probably was the

{{00:08:59}}
most neglected factor of the last decade.

{{00:09:01}}
And rightly because we as an industry,
we were trying to build sufficient.

{{00:09:05}}
And robust resilience to be able
to go through various type of

{{00:09:09}}
crisis and, therefore survive
those events and remain viable.

{{00:09:14}}
However, economic efficiency is
equally important because there's,

{{00:09:17}}
almost an inverse relationship
between being resilient, but at the

{{00:09:21}}
same time, economically efficient.

{{00:09:24}}
By that if you over invest in
resilience you will be a very robust

{{00:09:30}}
and very well capitalized organization
and very solid, and you can go

{{00:09:33}}
through lots and lots of crisis.

{{00:09:35}}
However, you will probably be less
competitive, and you may not be

{{00:09:39}}
necessarily attractive to investors,
as you will not necessarily

{{00:09:42}}
produce attractive performance.

{{00:09:47}}
vis a vis the cost of equity that, the
investment community was expecting.

{{00:09:51}}
Equally, if you under invest in
resilience that could probably

{{00:09:56}}
generate some profitability in the
short term for you as an organization.

{{00:10:00}}
However it will make you vulnerable
to events such as unexpected

{{00:10:06}}
or unanticipated type events.

{{00:10:08}}
and that quickly could
become a problem for you.

{{00:10:11}}
The idea of the trick is to maintain
that balance between a sufficient

{{00:10:14}}
level of resilience, at the same
time, remain economically efficient.

{{00:10:19}}
And how do you improve
economic efficiency?

{{00:10:21}}
I suppose, if you go back the last
decade, it's really the fact that

{{00:10:26}}
the business models haven't really
changed radically in banking.

{{00:10:30}}
And we're seeing now more and more
evolution towards for neobanking digital

{{00:10:37}}
banking, where the fundamental heart
of the business model of a digital

{{00:10:42}}
bank is centered around the customer
preferences, customer customer experience

{{00:10:48}}
in terms of consuming banking product,
but also getting excellent service.

{{00:10:52}}
from what they would
expect day to day banking.

{{00:10:55}}
And for that to happen, there's a lot
of effort that needs to work in the

{{00:10:59}}
background in terms of getting your
operational operating model set up and

{{00:11:05}}
geared towards serving the customers.

{{00:11:07}}
So we're talking about digital
transformation program, we're talking

{{00:11:10}}
about simplifying your processes, making
sure more automation is happening have

{{00:11:16}}
an agile operating model and governance.

{{00:11:18}}
and be closer to the customer and
customer needs but also in terms

{{00:11:23}}
of the broader performance aspect
like revenue optimization, not

{{00:11:27}}
avoid concentrations in funding,
but also revenue as well as credit.

{{00:11:33}}
And if you, apply those specific kind
of strategic levers, it will ultimately

{{00:11:41}}
gear towards having an organization
that is more economically efficient.

{{00:11:46}}
But I'll say the most important
point in all of this is having a

{{00:11:51}}
great ability to manage your capital.

{{00:11:53}}
Capital is a scarce resource.

{{00:11:55}}
Capital, just sitting on the balance
sheet and, to be able to say actually

{{00:12:02}}
hey we're very well capitalized.

{{00:12:04}}
It's not enough to be
economically efficient.

{{00:12:08}}
Capital has to be productive and capital
being productive means it has to be

{{00:12:12}}
allocated appropriately and generating
appropriate risk adjusted return.

{{00:12:18}}
And I think this is where we're heading
at this point in terms of resilience.

{{00:12:22}}
We've built a lot of
resilience in the last decade.

{{00:12:24}}
Since the global financial crisis
of 2008 2009, particularly financial

{{00:12:28}}
resilience, operational resilience,
and more recently strategic resilience.

{{00:12:32}}
Question is now, how can we be as an
organization economically efficient?

{{00:12:36}}
And for me, balancing those two elements.

{{00:12:40}}
is going to be absolutely a
fundamental characteristic of

{{00:12:43}}
success for a bank globally.

{{00:12:46}}
And that is the factor that ultimately
will determine how the market will

{{00:12:50}}
value organizations, but also how
customers will be loyal to a certain

{{00:12:54}}
institution or not, and ultimately
becoming competitively attractive.

think risk management is
transforming in several ways

to adapt to an age of continued
disruption, uncertainty, and change.

And the transformation of the risk
management function is happening

There's an expanded role of the risk
management function and the CRO in

particular, whereas risk management
is no longer the sole responsibility

of a function that looks at inherent
risks in the business model the things

that we call the known that are part
of you doing business, but in fact it's

transforming and expanding in its role
to look at the unidentifiable risks.

These are the emerging risks that
we call Known unknown that we know

But we don't know quite how to
measure them or quantify them.

But yet if they occur they could have a
significant impact on the viability and

So there's an element of elevation
of the risk management function to be

The strategic steering of our organization
as well as building the resiliency

infrastructure to cope with those events.

On the second point, it's
transforming in terms of remit.

So the remit of risk management
function is becoming broader.

It's no longer the sole
responsibility of a function or

It's actually becoming an
enterprise wide responsibility.

That means all employees and
stakeholders in an organization have.

a responsibility to
identify and manage risks.

And that requires a culture of risk
awareness and a shared understanding

of an organization risk appetite and
limits across the three lines of defense.

We're seeing more and more focus and
greater role for the first line to

reviewing and challenging and
overseeing the first line when

And the third and final aspect of
transformation, it's really the

capability of this management function
which is leveraging the advancement

to support its capability
to identify, measure, manage

So things like artificial intelligence,
machine learning these are all new

technologies being used currently
with risk functions and applied on

To allow us to detect patterns, to
detect trends, and this particularly is

relevant in the case of things like money
laundering, fraud as well as creditors.

But also the capability enhancement is in
the way we measure, in the way we look at

We look forward and we come up with
a scenario and we have this scenario

mindset to to be able to quickly
understand a certain aspect of

So in summary, risk management
is transforming to becoming more

strategic, more enterprise wide,
data driven, and forward looking.

And that would allow organizations,
particularly banks, to navigate

uncertainty, as well as coping
and adapting to changing business

I think when confronted with
unanticipated stress, such as global

pandemic, or a sharp, sudden increase
in interest rates or, a breakout war

what you find is that organizations
that have invested in resilience

capabilities, they tend to enjoy
better outcomes than those who didn't.

And I can explain here a little bit in
terms of resilience here the ability

of an organization to anticipate
threats and reduce vulnerabilities,

ability to absorb the shock, ability
to quickly recover from a stress event,

If you look at those four
dimensions, risk management has

So number one in anticipation
capabilities, things like

threats and vulnerability
analysis of the business model.

Do we understand what are the
top big ticket risks that could

threaten the viability and
sustainability of the business model?

Do we have horizon scanning capabilities
that allow us to detect what are

And if we do have those emerging risks
register, do we have an assessment

approach to look at those to understand
the likelihood as well as the impact

of those risks happening and what
does it do to our business model.

And then lastly, what sort of
early warning indicators we have

to help us quickly take action
before things materialize.

Those anticipation capabilities,
they help you ultimately to be

prepared for when a stress event
is going to happen and impact you.

The second sets of capability is when
the stress event happens, have you got

sufficient financial resources to cope
and absorb the level of unexpected loss

without having a long lasting impact
on your performance as an organization?

And here we're talking about the context
of banking, have we got sufficient equity

buffers, have we got sufficient capital
buffers to cope with the unexpected loss?

without necessarily impacting the
provision of regular functions

The third set of capabilities
is around the speed of recovery.

You could anticipate risks, you could
absorb a shock, but how quickly we

How quickly we could deploy certain
Measures to allow you to restore or

recapitalize if you need to recapitalize
or restore your liquidity buffer if you

And that is ultimately how prepared you
are to go through a crisis situation.

So for that, lots of capabilities are
required, like reverse stress testing,

market systemic stress, combined
stress, but also those processes

we call internal capital adequacy
process or internal liquidity process.

These are all geared towards ensuring
an organization, particularly a

bank, is prepared to go through an
unexpected loss situation and recover

with the recovery tools that are
typically in your recovery plan.

and also Operational
Business Continuity Plans.

RiskMinds & QuantMinds

Expert Insight

At the RiskMinds International conference 2023, we get an exclusive insight into the best practices in risk management for future banking . Discussing
this are Hanna Sarraf, Senior Risk Executive, Banking.