Bank trading floors reassess risks and controls

By Michael McCaw | 18 March 2020

Trading floors at many of the world’s tier one banks will be reconsidering their view of risk in the face of the coronavirus pandemic according to fintech market participants.

“In many ways the pandemic and the consequent market activity has delivered two simultaneous black swans: in parallel with the heightened market volatility, many dealing rooms around the world are looking for creative ways to cope with their own challenges of managing decentralised teams, as they strive to limit the impact of infection amongst their own employees,” says Paul Ford, CEO, Acin.

“For many, this will stress their risks and controls definitions in the face of new and un-envisaged scenarios – or ‘unknown unknowns’.”

Further, with many banks now having instigated company-wide remote working policies, many will be considering operational risk management within the context of business continuity management.  

“The use of decentralised working, split teams and the other myriad measures taken to limit interpersonal exposure will inevitably reframe the way businesses think about operational resilience, and will drive firms to consider new and creative ways to safeguard their ability to operate,” says Ford.

“As regulated businesses, financial services firms will be required to demonstrate to their respective regulators around the globe how their operational resilience stands up under stress.”

Before the market crash and coronavirus spread, much was being made about how banks and financial institutions were progressing within their digital transformation. While some say transformative projects may be on hold, many suggest those further along with their digital strategies will be at an advantage.  

“Those banks that have future-proofed themselves – specifically those that have prioritised cloud, digital customer experiences and applying technology to enable straight-through or at least more efficient processes – will absorb any short-term slowdown and rebound quickly,” says Alexandra Roddy, executive vice president at Zafin.

According to Roddy, Zafin expects economic activity to slow down for the next few months. Much like many in the market, management has been working on a strategic response to the tests they and their customers face.  

“At some point, the trajectory of the coronavirus will become more predictable – a new normal, if you will. At that point, the economy will start to pick up steam again,” she says. “Banks are better positioned than ever before to weather a downturn due to changes in capital requirements coming out of the Great Recession.”

For Acin and other fintechs, considering risk profiles is of paramount importance.

“Our present focus, however, is on the consequences of this new situation and ensuring that the emerging risks are understood and documented, and that suitable controls are agreed and implemented to ensure that any lessons learned become embedded,” says Ford.

 

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