Despite increasing resources dedicated to operational risk management, it continues to burden banks—to such an extent that a recent Basel Committee review states:
“Overall, banks have made insufficient progress in implementing the Principles originally introduced in 2003 and revised in 2011.”
According to a recent independent research published by Chartis, “Operational Risk Management Systems for Financial Services,” a staggering 98% of the top 50 operational risk losses in the previous 12 months – amounting to $60 billion – were due to conduct risk (specifically focusing on suitability or fiduciary failures and improper business or market practices). A theme common to many risk loss events is lack of tools and processes to help align and drive operational risk management. In fact, while banks continue to invest scarce resources in boosting areas such as stress testing and capital adequacy, the efforts committed to compliance aren’t necessarily being leveraged within the overall risk management framework to drive interrelated business-critical initiatives.Banks are turning to technology investments to help bridge the gaps. The Chartis report states that connected (or integrated) solutions that deliver “multiple operational risk, compliance, finance, performance, anti-financial crime and governance capabilities are winning against the silo-based point solution providers.” Also, bleeding-edge products that include unstructured data analytics, cloud computing and user-defined data model builders are being used, not to mention solutions that just a decade ago would seem like science fiction – social media-based risk monitoring, video game operational risk simulations and semantic audit analytics.
To that end, FICO has been building out our own decision technology and analytic capabilities that bridge compliance and risk. We’re pleased that the aforementioned Chartis report identifies us as an Operational Risk “Category Leader,” calling out our global risk and compliance solution as having a “systemic management of model production and route-to-live processes for conduct and operational risks.” It notes that our 2015 acquisition of TONBELLER (financial crime and compliance solutions in anti-money laundering and KYC areas) layers on top of our existing leading fraud management platform, which currently protecting 90% of all US card transactions. Advanced modeling, rules and optimization capabilities analyze at-rest and streaming data types that deliver critical information to a risk and compliance cockpit, driving automated, transparent and real-time decisions.
While we’re proud of this Chartis “shout out,” we won’t rest on our laurels. We’ll continue to work diligently with clients to solve their challenges around operational risk management. Besides ongoing enhancements to our solution roadmap in risk and compliance, we’ll also continue sharing insights and best practices on the topic. As an example, we recently published a white paper on model management and governance, entitled Reducing Regulatory Drag on Analytics Teams, which I encourage you to download.
