Trust: In On Foot, Out On Horseback

Rancher Leading Horse Through Snowy FieldI was chatting with a senior executive recently about risk management, and he made a poignant statement. He said: “Trust comes on foot and goes on horseback.” By that, he meant it takes a long time to build trust, but it can go away very fast.”

That comment made me think about how confidence in the financial services industry has been rocked over the last few years, and rightly so. If firms can’t demonstrate a strong ability to manage risk, then why trust them?

Financial firms have to monitor and manage an array of risks including information security, data theft, terrorism and business continuity. They also have a responsibility to prevent their employees and customers from engaging in market abuse and illegal activities such as insider trading and money laundering. The consequences of not managing these risks are onerous: regulators can impose steep fines, they can suffer damage to their reputation, and it could even destroy the firm.

Compliance has become a top priority financial firms, and they realize the importance of investing in technology and staff to perform this function well. Although it’s an incredible challenge to do, integrating various risk management systems is a powerful proposition that could have a positive impact on the firm’s operations and strategy.

Here’s just one example. Imagine the advantage of integrating the trade surveillance system with the governance, risk and compliance (GRC) system. Firms need to monitor trading activity and keep an audit trail on everything they do once their surveillance system sends out an alert. When the regulator asks how a firm manages its alerts, it can show them not just the actual alerts, but also the preventative actions and countermeasures that it took. To do that, it needs case management, workflow management, reporting, and dashboard capabilities in the GRC system that link to the trade surveillance system.

In a broader context, the aggregated information gleaned from the trade surveillance and GRC solutions is useful for identifying and monitoring trends. Going through many cases over the course of a few years may reveal an increase or decrease in a particular type of market abuse. That information could be used to enforce or change policies as well as alter systems or alert settings.

Managing individual exposures is tough enough, but gaining a holistic view of risk, turning it into intelligence and managing it enterprise-wide is one big hurdle to jump. Firms are working on it, but they still have a way to go.

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