FINANCIAL SERVICES INSTITUTIONS INCREASE IT SPENDING ON RISK MANAGEMENT SOLUTIONS

Amid a continuing wave of business globalization, financial services institutions (FSIs) are tapping advanced technologies to reframe their operations. In addition, FSIs are being challenged to align their operational risk management and fraud prevention capabilities to contain a multitude of threats. New research from TowerGroup estimates that IT spending on external risk management solutions is growing at an 11% compound annual growth rate.

Business operations encompass people, processes and governance aspects that transcend information in IT systems. TowerGroup believes that FSIs who proactively understand the full dimension and impact of the new risks that are affecting their business operations will be able to attain an optimal state of interlocked business operations and manage operational risk and fraud for business gain.

TowerGroup finds that anticipating, modeling and preventing risk events is more effective than after-the-fact inspection and damage control. FSIs can adopt features that will allow synergies across the technology and compliance planes. Data integration from structured and free-form sources, advanced governance and modeling capabilities and information sharing structures are some examples of the preventive and strategic tasks an institution can carry out to improve their resilience during a time of rapid technology and electronic growth.

Institutions must also bear in mind that clients may resent paying for overhead costs related to compliance, controls, fraud, and operational losses. While FSIs may be keen to adopt additional controls such as risk-based authentication, these methods could turn out to be intrusive in call centers and other high-touch, high-throughput interaction environments.

The TowerGroup research viewpoint titled, "Operational Risk and Fraud: Too Many Drops in the Ocean?" by Guillermo Kopp, executive director and global research fellow at TowerGroup, highlights the emerging complexities and vulnerabilities attached to new financial services business models and operations. It also explores integrated avenues and technology approaches to manage operational risk and fraud in a challenging environment.

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