| |August 20199FINANCIAL INSTITUTIONS ARE MAKING FRESH INVESTMENTS IN ENTERPRISE RISK SOLUTIONS, USED FOR BOTH INTERNAL CONTROL AS WELL AS REGULATORY REPORTINGe-payment systems in place. This makes it imperative for financial institutions to be ready for `open banking'. This means institutions participate in a FinTech-ecosystem where data is shared among participants, of course in a structured industry standard format that's secured and encrypted. PSD2 is a pathbreaking regulatory push in the EU mandating financial institutions to expose APIs for others to connect so that customers get a seamless payment experience. For instance, customers will, in the near future, pay their utility bills, from Twitter using funds from their bank accounts.4. Quantification of Risk: Fi-nance has been a risky business from inception, with higher risk corresponding to higher pricing of credit. However, this has tra-ditionally been viewed narrowly with pricing being linked to cred-it rating which in turn is mathe-matically linked to default proba-bility. Regulation is now moving towards similar quantification of other aspects of risk. For instance, operational risk has generally been viewed as A field dealing with purely subjective aspects like `Safe IT practices', `Physical Security at the workplace' which find a pass-ing mention in risk management conversations as they are not di-rectly viewed as impacting cred-it. However, it is increasingly ac-knowledged that operational risk could lead to a financial and repu-tational loss for a financial insti-tution if not controlled, and Basel norms have even categorized op-erational risk into buckets for bet-ter monitoring, control and capital allocation for operational risk. To-wards this, financial institutions are making fresh investments in enterprise risk solutions, used for both internal control as well as regulatory reporting. Similarly, aspects of credit pricing beyond credit rating, including the pres-ence of margins/guarantees, utili-zation levels, non-interest income, etc when quantified give bankers opportunities to price their prod-ucts better by considering the to-tal relationship value of a custom-er rather than viewing a credit facility in isolation.5. Focus on Automation: Au-tomation is frequently associated with only headcount reduction. While that was the starting point, today automation is seen by reg-ulation more from risk manage-ment and transaction traceability point of view. The more transac-tions shift from manual entry to system generated events, the better is the ability to audit such activi-ties, which in turn results in better accountability from the partici-pants undertaking the transaction. Straight through processing (STP) is the mantra now, with manual in-tervention limited to verification, file uploads, etc. Another aspect of automation is the reduction, if not elimination, of erroneous deci-sions which can be of two types:a. Intentional Mistakes: Personal biases can hamper decision making leading to bad credit decisions. Having a model-driven approach can remove this from the equation and ensure consistent decision making given proper inputs, thereby ensuring McDonald's type standardization to the maximum extent possible across units/branches in the bank.b. Unintentional Mistakes: Manual errors in data entry can be avoided by system level checks and validations, saving financial institutions from a lot of entirely avoidable pain.The global financial system is moving away from a rigid regulatory framework to a more market-friendly approach, and this is great for business but at the same time brings in more risks on the table. As seen above, this is a problem that technology can overcome, with innovative solutions being engineered to take care of each kind of risk. C I
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