Advancements in technology have helped make day-to-day activities easier to accomplish. However, they may also pose challenges and risks. That is why, now more than ever, risk management is vital for organizations. That is especially true for those in the financial sector. Having the 3LoD (three lines of defense) model can help. However, organizations have to make sure they can keep up with the demands of the industry as a whole and cyber security.
New technologies are introduced to us constantly. Knowing which ones offer the most benefits to make functions and transactions more seamless is vital.
For instance, approaches to the 3LoD model can vary depending on the needs of the company. While the traditional option is more on the functional side and is silo-based, many companies are going for different approaches. One of these is the digitized method.
The digitalization of the risk management approach helps organizations view risk functions based on their ability to drive change, generate value, and satisfy the rising expectations of customers. The main objective of the 3LoD framework, which is to protect the organization from various risks, like cyber security, remains. Central to this is trust.
That said, it is important to ensure that risk management tactics do not add friction, slow processes, or deter innovation. They must be able to add value for clients while creating trust at the same time.
Digitalization in Action
There is no denying that digital transformation is where the trend is going. It is seen in many industries. In the financial sector, there are various forms of digital transformation in different subsectors of financial services. However, perhaps the one that is gaining momentum is the banking-as-a-service (BaaS) construct.
Many fintech companies and banks have adopted innovations that will allow them to engage with their customers in deeper and more meaningful ways. Thus, transforming the way banking is done.
For instance, traditional banks are now offering digital experience platforms. Mobile banking has increased, and new payment methods were introduced.
Addressing Needs And Cyber Security
With the COVID-19 pandemic, many regulators accelerated the shift towards asking financial service providers to identify the most important business services they offer, consider vulnerabilities broader than IT and cyber security failures, and assume possible severe systemwide threats that could lead to the failure of said services.
Risk management approaches are seen to need a more holistic approach that not only focuses on strengthening technology infrastructures and information security, but also addressing cyber security threats. At the same time, they should be able to enhance key touchpoints. For instance, they have to streamline the process to open an account. Additionally, risk intelligence should allow organizations to make quick decisions and improve their effectiveness and efficiency.
Digitalizing key risk management capabilities will not make 3LoD irrelevant. Instead, it will help strengthen it for better results.