Financial firms struggling to assess risks of disruptive technologies: Accenture

An overwhelming majority of financial firms’ risk managers don’t believe they can adequately assess the risks of disruptive technologies but are open to new strategies and tools to better manage emerging threats, according to a new report by Accenture.

The report, “Accenture 2019 Global Risk Management Study,” is based on a survey of nearly 700 risk management executives in the banking, insurance and capital markets sectors globally.

Among the key findings: Only 11% of risk managers describe themselves as fully capable of assessing the risks associated with adopting artificial intelligence (AI) across their organizations, and even fewer said they are fully capable of assessing the risks associated with robotic process automation (RPA) or blockchain (9% and 5%, respectively).

The report notes that the external risk environment is becoming increasingly complex, with risk teams realizing they must adapt their approaches to contend with new threats and the heightened pace of change.

For instance, nearly three-fourths (72%) of respondents said that complex, interconnected new risks are emerging more rapidly than ever before. At the same time, more than four in 10 respondents (42%) said that the risk function is, at best, only somewhat effective at responding rapidly to changes in the external risk environment.

“As the risk landscape continues to shift and evolve — with increasing complexity in protecting against data breaches and managing new, interconnected threats — risk managers aren’t able to evolve at the same pace as technology,” said Steve Culp, a senior managing director at Accenture who leads the company’s Finance & Risk practice. “Fortunately, risk managers acknowledge the need to adapt and embrace new tools and approaches, including broader sources of data, advanced analytics and AI, even against a backdrop of mounting cost pressures.”

While disruptive technologies — including AI and natural language processing — can present risks across organizations, the survey revealed a strong correlation between the deployment of these technologies and robust risk-readiness within the risk function itself.

For example, 73% of respondents whose risk functions use machine learning are satisfied with their progress during the past two years in preparing their business for volatile future scenarios, compared with only 45% of respondents whose functions don’t use machine learning or advanced analytics.

Unfortunately, risk functions’ scaled adoption of sophisticated technologies remains limited. While nearly all risk functions have started using RPA to automate routine tasks, only two in five respondents (40%) said they apply advanced analytics such as AI and predictive modeling to their datasets, with only 10% applying machine learning. The report notes that this lack of adoption is a missed opportunity for risk functions, given these technologies’ immense potential to mitigate risk and improve risk professionals’ performance.

Data challenges impede adoption of advanced analytics

The report reveals that risk functions’ difficulty to make better use of these technologies, particularly advanced analytics, is compounded by data challenges. According to the study, the top three obstacles to implementing advanced analytics across the risk function are data residing in silos, lack of clarity around regulation, and integration challenges with legacy systems.

Encouragingly, risk managers know that they need to improve how they collect and analyze data to generate useful insights. For instance, nearly two-thirds (63%) said they are improving their ability to collect enterprise-wide data, and 66% said they are honing their ability to analyze it. The study notes a need to obtain traditional data faster and to draw from new data sources, including marketing and social media, to help respond to threats and add value across the business.

Noting that only 55% of respondents said they believe that other functions recognize the important role that risk plays in driving positive business outcomes, the report suggests that increased collaboration will be essential to raise awareness for how risk managers can add value across the organization. Encouragingly, the risk function has improved its collaboration with the finance function, with 75% of respondents saying they have a close working relationship with finance.

“By improving collaboration with other business functions and arming themselves with a broad range of data and analytics tools, risk functions can make considerable progress anticipating, assessing and mitigating new threats,” Culp said. “Moving quickly will be critical, but so will taking a holistic view of the risk landscape, prioritizing what they know, and preparing for what they don’t yet understand to help redefine the sphere of control.”