Risk management and innovation can be balanced in financial services

The world we live in today features both high risk and high innovation. To some, innovation creates risk. The term “disruption” as at it relates to innovation indicates next-generation products, services and operations. The term “disruption” as it relates to risk management may stoke fear in the heart of the Chief Risk Officer.

If you ask a Chief Risk Officer what keeps a company running, the answer might be about strong foundational elements – identifying, prioritizing and quantifying risk – and implementing strategies and solutions to keep risk at bay.

If you ask a CEO what keeps a company running, the answer might be about taking risks. Those risks drive innovation in business and use new, disruptive technologies such as blockchain, Artificial Intelligence (AI), customer experience platforms and machine learning to provide a more frictionless experience for customers, who are demanding digital transformation and ease-of-use.

While it would be easy to look at risk management and business innovation as opposite ends of the spectrum, there are opportunities to balance risk and innovation, and even create a symbiotic partnership whereby risk management catalyzes innovation and innovation drives improvements to risk management.

As the call for innovation grows from customers and business leaders alike, risk managers and business leaders have an opportunity to align business objectives and ensure that innovation does not put the institution at risk.

Here are a few opportunities to ensure your risk management practices stay ahead of market disruptors, become part of the business transformation and avoid becoming an innovation buzzkill:

1. Modernize risk monitoring and modeling tools

As financial institutions modernize platforms such as banking and loan origination, be sure your tools for risk monitoring and financial modeling are part of the technology upgrade discussion. Many financial monitoring and modeling tools are co-dependent with various applications and databases. If an institution changes to a new platform, your monitoring system or financial model may suddenly lose all of its context and data. Moreover, as the infrastructure of your business improves, risk management has a strong argument to get the latest and greatest tools.

2. Add talent and teams

Since the 2008 crisis, risk management has become more holistic and integrated across functions such as compliance, accounting, IT and credit. At some institutions, this change required a significant shift to how an institution set up its risk management functions. In today’s high-innovation world, it may be time to again revisit the structure of your teams and the skill set of your talent. Some institutions are inserting risk talent into business and technology functions to ensure innovation and risk management are engaged and aligned from the beginning stages of new technology consideration through to implementation and testing.  Other organizations are hiring talent and developing innovation risk teams to specialize in risks such as digital transformation and artificial intelligence. Engagement in the innovation process will ensure an organization remains in the know at all times.

3. Be a partner not a problem

In any organization, it is easy for the risk management function to be known for its “strict parenting” style. While this may not be true at every organization, it is important to stay aware of any such perceptions.  Since innovation is happening within your institution whether you like it or not, it is better for risk management leaders to be part of the conversation and appreciated for their input. If a business leader and innovator tires of hearing all the ways they can’t innovate, a new risk emerges: risk management will be blocked from the conversation. If the institution is set on adopting an innovation, be willing to provide the risk assessment but also identify possible solutions, systems, processes and policies that may help them achieve the objective.

Risk management is often a thankless role with the quiet reward being that the business continues to operate. Today, as innovation occurs across financial services, risk functions need to adapt and participate. If a financial institution’s risk function does not adapt, it will become the biggest risk.