September 20, 2017 by Canadian Underwriter
While large financial institutions have made progress applying smart technologies like cloud, biometrics and big data analytics to their risk management functions, two-thirds (66%) of executives say skills deficiencies are impeding the effectiveness of the function as these technologies evolve, a new study from Accenture has found.
The Accenture 2017 Global Risk Management Study, released on Wednesday, involved a survey of 475 senior risk management executives at banks, insurance companies and capital markets firms globally. It is the fifth edition of a study first published in 2009 and was conducted by Longitude Research on behalf of professional services firm Accenture.
According to the study, three-quarters of executives (73%) cite an increase in the “velocity, variety and volume” of data as impeding the effectiveness of their risk management functions. “Firms are struggling to develop the skills necessary to make use of the larger information flows and take advantage of related opportunities,” Accenture said in a press release.
“As the nature of risk becomes more and more diverse and the amount and quality of data explodes, the need for the skills to bridge core risk management and new technologies is more urgent than ever,” suggested Steven R. Culp, senior managing director of Accenture’s Finance & Risk practice for financial services. “Since the 2008 financial crisis, the world has changed dramatically.”
Previously, Culp said, financial institutions responded to regulatory and control issues by adding talent. Now they must pivot to increase the skills of their talent to keep pace with new realities of data and technology. “While technology cannot replace experience and good risk management discipline, the risk teams that will be most effective at integrating technologies like big data to recognize patterns and test hypotheses will be the ones that are best positioned to outperform their peers,” he said.
The survey found that 69% of executives believe that a shortage of skills in new and emerging technologies is hurting the risk function’s effectiveness. Only 10% said their risk teams have the internal resources needed to carry out the functions they are asked to perform.
Skills shortages in risk management have been a persistent issue for financial institutions since the 2008 financial crisis, Accenture added. One-third (32%) of risk executives cited resources and talent as a significant challenge in 2009 when Accenture first began conducting the risk management study. Two years later, over half (53%) of executives were still reporting plans to increase headcount. In 2015, only 41% of executives felt their organizations had the digital technology skills needed for risk management.
In the most recent study, risk functions are still in early stages of adopting smart technologies. A minority of respondents said they are “highly proficient” at incorporating these technologies into the risk management function.
Looking outside the existing workforce to extend or enhance the team is an increasingly common strategy for dealing with talent shortages, Accenture reported. About half of this year’s study respondents said they expect to increase their use of outsourcing in areas such as technology implementation, risk reporting and risk measure calculation.
In terms of integration of risk across the organization, the study suggests it is still somewhat limited. Less than one-quarter (24%) of respondents said their risk management activities are coordinated across risk types; 19% said the activities are coordinated across lines of business. Only 23% of respondents said there is strong integration between the integration of risk and finance.
“The risk management function has made great progress since we conducted our first global study in 2009,” Culp reported. “Smart technologies such as robotic process automation and artificial intelligence are gradually taking hold, and more respondents are reporting the integration of risk analytics within planning and decision-making. That said, staying ahead of the next wave of risks – whether operational, financial or technological – requires a continuous evolution of the risk function, and only companies that put in place the right risk capabilities will be best positioned for growth.”