Fintech’s Role in Risk Management

22 Sep 2017

Risk is ever-present in an inter-connected world—risk in one area often spells risk in another. In the inter-connected world of finance, there are many risks that threaten the success, and even the very survival of businesses both great and small.


While risk magnitude is relative, all businesses are faced with the challenge of managing risk, in order to be prepared in the event of a potential loss becoming actual. And because of its monitoring, data gathering, analysis, and processing capabilities, Fintech makes risk management easier for not just businesses but for all participants in a financial eco-system.


Knowing what to look out for is the first step in risk management; one can’t be prepared for something one knows nothing about. A Forbes interview with the CFO of a major property insurer classifies risk as economic, catastrophic and logistic. The CFO likewise points out cyber risk, urbanisation rates and supply chain visibility as emerging risk drivers.


Examples of the risks in these categories that are faced by businesses include equipment failure, data breaches, and natural disasters such as fire or floods. Events like stock market crashes can affect not only local businesses but its affiliates, partners or clients overseas. And businesses using outdated IT models run the risk of making poorly informed decisions.


This is why Fintech is crucial to risk management.


In a white paper on Fintech in fund distribution, Deloitte describes four types of analytical capabilities which, when taken in the context of risk management, are also descriptive of how Fintech is able to help.


  1. Fintech can track activities to allow a business to respond accordingly in real time.
  2. Fintech can make data-driven predictions to aid decision-making.
  3. Fintech can facilitate understanding of business impact and customer response.
  4. Fintech can monitor financial and operational performance.


Examples of these capabilities in action include prospecting and sales, credit administration and underwriting, risk assessment, risk reporting, and portfolio construction—all paperless, all automatic, and all processed in real time.


The extent of these capabilities may of course be adjusted, as risk sensitivity is also relative. Regular “fine tuning” according to sensitivity is also important since, as Falkonry points out, Fintech’s effectiveness will depend on balancing risk exposure with the efficiency of a business’ staff.


Fintech enables analytics, assessment and reporting.


Big Data has irrevocably changed the operations of entire industries, and financial services is no exception. Major investment management companies are investing in data management and analytics, and with good reason.


Data is making it possible for these companies to gain insight into key indicators such as investor behaviour and production penetration. They become able to asses their clients’ investment preferences and risk tolerance, as well as their readiness to purchase certain products.


Data likewise helps these companies in terms of product development and marketing support, safety and efficiency protocols, exception processing, and error recovery, as well as spot market risks and opportunities.


As data becomes more and more sophisticated, the more sophisticated risk management demands become. Corporate investors, for instance, will want to know how well their portfolios are performing in real time. They will also want to be able to predict, to some extent, what could happen in certain investment scenarios.


Asset management companies will therefore look to Fintech to provide the necessary tools for tracking, simulation and evaluation. In so doing, these companies will also be able to advise their clients on how to boost their returns. This advice often finds its way into customised reports, which continue to evolve in order to enhance and expedite the decision-making process.


Examples of Fintech tools that meet these sophisticated risk management demands include a fund data utility that offers real-time data at source, and a software solution that is in sync with financial regulations governing risk management compliance.


There are also robo-advisors which many individual investors consider an attractive and more accessible alternative to traditional means of obtaining risk management advice. With the growing number of companies investing in Big Data and analytics, the robo-advisors of these companies will gradually be able to provide more specific and customised advice.


This is why you need Fintech capabilities.


Given the importance of Fintech in the financial industry in general, and in risk management in particular, it stands to reason that anyone who pursues a career in risk management will need Fintech capabilities in order to remain relevant. Demand for staff in traditional roles will continue to drop as more financial operations become digitised.


Though technology has become indispensable to the industry, the need for human insight and intervention can never be dispensed with. As with any other sort of tools, the tools provided by Fintech are only as good as their users. It therefore becomes imperative for financial institutions to find qualified professionals who will be able to use Fintech tools in the service of their clients.


Such professionals will not only be able to maximise the use of Fintech tools, but also use them ethically and with discernment. And until robo-advisors develop the level of understanding necessary for establishing and maintaining relationships, human Fintech practitioners will always be needed when interacting with clients.


Recognising the need for Fintech and the experts behind it, Singapore continues to actively support Fintech development. The Monetary Authority of Singapore (MAS), for instance, has committed to invest SGD225 million in Fintech projects over five years. Together with the National Research Foundation, MAS also set up the FinTech Office to engage with the Fintech community.


This is how SMU Academy prepares you.


In response to the needs of a Fintech-driven industry, SMU Academy provides Finance, Financial IT and Risk Management courses to equip business IT and financial professionals. These courses include the ACI-SMU Financial Markets Certificate, which helps participants better understand financial markets, trading and treasury sales, and risk and asset-liability management.


The SMU Professional Certificate in Governance, IT Risk Management and Compliance, on the other hand, focuses on managing technology and operations risks in financial services. Both courses are accredited by the Institute of Banking & Finance (IBF), and participants who complete the courses will be certified IBF Qualified.


Leverage the experience of the Academy’s instructors who have held key management positions in  major multi-national financial institutions. Get in touch with SMU Academy today to take your next steps towards a successful Fintech or risk management career.