How digital transformation is changing your risk and compliance profile Driving business performance with an integrated approach to risk and compliance management systemsContributing author: Mark Kalen, Global Product Strategy & Marketing

Digital technologies are disrupting business models across industries, often subverting traditional compliance management systems and radically altering your risk profile in unanticipated ways. New customer engagement models are also being brought to market more rapidly than ever before. While these new systems and applications allow organizations to quickly capitalize on market opportunities, they can spell disaster for risk and compliance practitioners.

Small start-ups often run into problems because they just don’t know what their risk exposure is. Larger companies, on the other hand, may feel pressure to cut corners in their zeal to keep up with new, more agile competitors.

Another key challenge lies in the ability of organizations to monitor operations and manage risks involving the activities of third parties.

Enabling technologies, such as advanced analytics, cloud computing and mobile applications, present opportunities for cost savings and new revenue streams but also pose their own inherent regulatory and operational risks. At the same time, regulators continue to demand individual accountability when wrongdoing occurs.

The drive for individual accountability means greater pressure from corporate boards to document and maintain detailed job descriptions, role responsibilities, policies and procedures. Organizations and individuals deemed to be negligent in their risk and compliance practices face public censure, fines and other penalties. When combined with a shortage of skilled compliance and risk professionals, the result is a perfect storm of risk – a storm that grows darker by the day.

• What impact does this have on your company’s risk profile?

• What changes are you making to your compliancemanagement system to prevent, detect and respond toregulatory and operational issues?

• How do you sustain a culture of risk compliance and avoidconflicts of interest in the midst of aggressive growthexpectations and cost-cutting initiatives?

• Are third parties that engage your customers held to the samestandard of conduct as your own employees?

• Are third parties sharing customer data electronically or byother methods with subcontractors or others?

• If so, how is your customer data governed and protected?

For business leaders, digital transformation is a mixed blessing. While it offers boundless possibilities for growth and value creation, it comes with its own set of operational, regulatory and third-party risks. Heightened expectations around business performance increase incentive and opportunity for risky and unethical behavior.

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Managing regulatory change for financial servicesThe regulatory context is particularly strict and arduous for financial services firms. New market trends, disruptive technologies, evolving economic structures and stricter regulatory requirements are pushing the industry towards business models that emphasize integrated risk and compliance systems.

The ambitious regulatory reform agenda implemented after the global financial crisis has significantly increased compliance costs, forcing financial services to intensify and rethink their risk approach. How can financial services firms take advantage of digital technology vital for their success and perhaps survival, while minimizing the associated risks and liabilities?

The emergence of RegTech and artificial intelligence is helping meet the challenges of regulatory monitoring, reporting, compliance and risk management. RegTech solutions have the potential to streamline compliance monitoring and reporting, making the process simpler and more cost-efficient.

RegTech firms specializing in artificial intelligence are partnering with regulatory domain experts to enable better-informed decisions. This capability applies to not only regulatory change management but also to specific compliance functions, such as anti-money laundering, know your customer, conducting surveillance and stress testing.

Create a robust risk management foundationThe move toward digital transformation requires organizations to evolve their compliance management systems for new business models, processes and relationships. The best-prepared organizations are those that integrate rigorous risk management and compliance capabilities, standardized processes and best-in-class technologies.

Digital transformation affords organizations a golden opportunity to assess their current organizational structure and processes and build an integrated risk and compliance framework.

Move forward with technology Many organizations continue to conduct their risk and compliance functions in a manual, ad hoc fashion. New automated capabilities are now available to help streamline compliance processes and help risk and compliance managers make more accurate, informed decisions.

Using advanced analytics, teams can better prioritize areas of risk for testing or monitoring, create an enterprise view of compliance risks, and embrace threshold monitoring and predictive tools to free compliance talent to focus on deeper analysis and remediation of issues. IT personnel can work hand-in-hand with compliance teams to jointly identify and address business-critical compliance issues.

While new technologies may be the foundation for remaking the compliance function, they typically can be optimized only when deployed in partnership with re-engineered processes and requisite operating

EMBRACING THE CHALLENGES OF DIGITAL DISRUPTIONBanks and other financial services firms face a number of unique challenges:

• Regulatory change management is top of mind and aboard-level discussion, emphasizing the need to strengthencompliance management systems.

• Cybercrime is on the rise. Financial services firms handlelarge volumes of sensitive customer data and therefore makeattractive targets.

• New customer engagement models are emerging. Customers’expectations of financial services are rising as technologyenables new business models making goods and servicesavailable anytime and any where.

• Employees are changing the way they work. Increasinglyremote workers are always on and engaging while on the move.

Rethinking compliance in an era of changeWell-developed governance, risk and compliance (GRC) programs do more than mitigate risks; they help optimize company performance. Your GRC functions need to evolve in response to changes brought about by digital transformation. These core functions and processes include:

• Policies and procedures creation and enforcement• Incident management• Third-party risk management• Contract management• Disclosure of gifts, hospitalities and

conflicts of interest

• Whistle blower hotlines• Compliance management systems• Enterprise risk management• Internal audit

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protocols. Risk compliance officers can work with IT leaders to ensure new techniques and practices are considered within the broader enterprise that also includes people, processes and analytics. This approach will better determine which tactics best enable compliance and risk practitioners to move toward a more successful outcome.

Apply smart, integrated risk management practicesAlong with employing the right technology, managing operational and regulatory risk requires a keen focus on organizational processes. It doesn’t make sense to launch new, agile risk management techniques only to weigh them down with traditional practices that create delays and restrictions.

Transformation initiatives shouldn’t be constructed in silos. Effective risk management requires the implementation of complex decision-making processes, involving the collaboration of different types of expertise and many hierarchical levels. Risk and compliance activities must, however, be integrated into business processes without significantly weighing or slowing them down.

Organizations are increasingly attempting to break down existing silos separating different types of interrelated risk, such as operational, regulatory and third-party. Collaboration among these domains is a solid step forward, but what is ultimately needed is collaboration across all three lines of defense. These areas must perform seamlessly with one another to be effective.

Business owners need to be motivated to “own the risks” and to manage these risks collaboratively with all involved stakeholders to achieve improved business performance. The use of technology can be an important enabler for this type of collaboration, but it’s vital that it facilitates collaboration that goes beyond traditional silos and is an integrated element of how you run your business.

Train and empower people Training and new skill sets are required to transform and operate risk and compliance functions of the future. Business leaders should evaluate their current training strategy to ensure that the competence, expertise and tools of their teams remain current and useful in overseeing new business practices and processes.

Determine whether new skills are needed to balance existing expertise. Recognize that properly incentivized people are the strongest links in the chain. It’s not enough to just try to force people to do what they are told. It is necessary to shape behavior and motivate people to do the right thing. To create a culture of risk and compliance, a fully functioning complaint management system combined with clearly defined disclosure requirements drives home the importance of ethical behavior.

Making processes simpler and encouraging people to act with more integrity and be risk-oriented are crucial. In the age of digital, the involvement (and empowerment) of people is more important than ever before, and so it is for GRC practitioners.

BOLSTERING YOUR ADVANTAGE IN AN UNCERTAIN FUTUREDigital transformation is putting greater pressure on organizations to realize unrealistic returns and cost savings, increasing the likelihood of risk and compliance issues. The digital age has brought a restructuring to the modern enterprise that changes how we govern data, handle access control and mitigate risk. It is changing your risk profile in a variety of ways, such as evolving customer engagement models, new third-party relationships and business process redesign.

Strategies for managing risk and compliance must be more comprehensive, more automated and more effective. Managing risk proactively is a strategic imperative that creates opportunities and a competitive advantage for customers. Managing this risk is predicated on a foundation of people, processes and systems that enable organizations to take risk confidently, continuously anticipate market events and deliver innovative solutions for their customers.

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About SAI Global

At SAI Global, we help organizations proactively manage risk to achieve business excellence, growth, sustainability and ultimately, create trust.

Our integrated risk management solutions are a combination of world-class tech platforms, services, learning, and advisory capabilities that operate across the entire lifecycle allowing businesses to focus on opportunities presented by uncertainty.

Together, these tools and knowledge enable customers to develop a holistic, integrated view of risk. In Australia, we are also a leading provider of settlement related services; company, personal and property information.

SAI Global Limited’s head office is located in Sydney, Australia. We employ more than 2,000 people across 28 countries and 51 locations across Europe, the Middle East, Africa, the Americas, Asia and the Pacific.

To find out more visit www.saiglobal.com

Reap the benefits of an agile, integrated approachA solid integrated approach to risk and compliance that provides a complete view of risk is essential for businesses to prevent, detect and respond to issues. Well-developed GRC programs do more than mitigate risk; they provide organizations with the opportunity to take what has been a cost center and transform it into a predictor of risk and provider of loss-prevention opportunities.

For more information on SAI Global, visit https://www.saiglobal.com/en-us/compliance_and_risk/compliance_360/industry_solutions/financial_services/