Digitisation Calls for an Enhanced Risk Management Strategy
Risk management programs across all types of organizations must evolve and embrace new competencies, much faster than what has been the norm previously.
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Digitisation is the buzz word and the new order, which is disrupting industries across the globe. Be it banking, travel, communication or entertainment, it has transformed the industry landscape significantly. While digitisation offers industries across the spectrum an opportunity for unprecedented growth, it also poses a challenge in terms of a host of emerging risks that corporations must be wary of.
As a part of my job, I meet a lot of leaders across industries who are excited about leveraging the digital revolution to enhance their business. However, very few of them are proactively upgrading their risk management programs. As digitisation penetrates further into industries, it will be imperative to have an evolved risk management strategy in place. Why? Because, Risk will emerge at a much faster pace than ever and it will become increasingly difficult to intercept it.
There are a number of incidents in the recent past which highlights the need to deploy the digital revolution in the risk management programs as well. For instance, the recent ransomware attack or the panama paper leak – are just a few examples of the flipside of the digitization. More recently, directors of a regional mid-size organization were arrested for a loan scam worth thousands of crore. Interestingly, the promoter of the company was blacklisted by SEBI, much earlier than the loan scam. In the digital world, customer footprint can be screened to gather necessary risk intelligence and to avoid such risks.
Lately, many such incidents are coming to the forefront, giving rise to high NPAs in India. While the issue of Non-Performing Assets has caught the nation’s attention in terms of resolving non-performing assets, the systemic issue of raising red-flag before the delinquency will be critical to resolving the problem. The digital world would offer the opportunity to identify underlying risks and raise the red-flags in a timely manner.
Highlighted below are some of the areas, risk and compliance officers of leading organizations and financial institutions, are improvising their risk and compliance programs.
Digitization has enabled screening individuals or entities for financial crime and negative media news. Service Providers can provide this information in a structured way for organizations to streamline their search and their due-diligence program.
Digitization can further facilitate knowing your customer and knowing your supplier and knowing your employee. Organizations need to move on from a mere collection of documents to a thorough due-diligence program. An effective screening solution can for-example help gather more information about the customer by carrying out enhanced due diligence to flag off past frauds/regulatory scrutiny, Politically Exposed People (PEPs) and focus on ultimate beneficiary ownership.
Digitization can further help in a number of other areas, as well, including IT Security and Control management. The current digital landscape calls for an absolute sense of urgency to drum up risk management practises and at the same time provides the opportunity to create the same.
Risk management programs across all types of organizations must evolve and embrace new competencies, much faster than what has been the norm previously. Data will form the most critical element of overall risk programs, with organizations that can deliver risk intelligence in time and can facilitate seamless flow of information both externally and internally will eventually emerge as clear winner.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house
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