COMPLIANCE
In the case of Credit Suisse and Greensill , it was about concentration risk , which any risk manager should have recognised at that level . A culture of putting profits first made it difficult to highlight these risks . Therefore , integrating compliance together with culture is absolutely key .
FM : Which factors are causing compliance to be an issue , and how can they be resolved ?
HNT : I ’ d say two issues : 1 ) Culture and 2 ) Knowledge .
The prevailing culture today , as I indicated , is that compliance should be considered a support function , a ‘ tick the box ’ exercise , whereas it should be part of the decisionmaking process .
Knowledge is the other big issue . In a digital world , compliance can ’ t be manually driven and therefore has to be digital . However , most compliance officers are not tech-savvy . As such , bridging the knowledge gap and getting compliance officers to understand more about technology , as well as getting the organisation to try new tools , would be key .
FM : To what extent can developments in automation and data analytics facilitate greater adherence to financial regulations ?
HNT : Greensill had a huge concentration risk that was made worse because a lot of the borrowers were related parties . Using artificial intelligence and network analysis could have identified that all these parties were related .
Automation and analytics could also enable banks to have a real-time view of their risks and metrics and exchange information in real-time with regulators .
40 July 2021
What is ‘ concentration risk ’?
This term refers to the level of risk inherent to a bank ’ s portfolio as the result of undiversified interests , whether a fixation on a commodity , sector , market , etc . Naturally , if this focused point of investment falters for any reason , such as economic downturn or supply issues , this can cause significant financial ramifications for the organisation holding a concentrated interest in it .