Wednesday October 05, 2022

3 Key Requirements for Effective Risk Management

Financial firms know the importance of having a reliable and robust risk management system. No matter how large your clientele is, any business dealing with investments, trading, and securities must be aware of the regulatory risk. Risk management is a hot topic at both the industry and federal level.
There are three essential requirements for firms that want to improve (or start from scratch) their risk management efforts. Wealth management firms will be successful in 2022 if they have the right platforms, people, processes, and tools to identify, rectify, and document risks. These core characteristics are essential to the success of risk management solutions.
Consistent and accurate identification of risk
All risk management systems must be able to accurately and consistently identify risk. A data aggregation system that allows for the scoring of and flagging potential risks is a great investment for firms.
This identification process starts with identifying a platform that can pull data from different sources and display the results in a single-view dashboard. The ability to identify patterns or other consistent, problematic behavior in trade activity allows for better threat identification. This will also reduce the time spent on false alarms. PWC reported that automation of its central service functions has saved them 160,000 hours in 2019. This not only reduced the time that employees had to spend evaluating and identifying risks, but also made it easier to identify problems before they become too difficult to resolve.
Robert McGill, President of Docupace’s Compliance and Compensation Platforms, hosted a webinar earlier this year on topics related to risk management. He spoke out about the multitude of false positive alerts that risk management software generates daily. Recent reports show that relationship managers spend as much as 60% to 70% of their time doing non-revenue-generating activities. These alerts can cause unnecessary distraction and false lead seeking for back office employees, which is not surprising.
McGill advocated for smart programs that provide a tailored solution to categorizing alerts, and notifying the appropriate people about the appropriate risk levels. Docupace excels in this nuanced handling threat alerts, with its 45 types that can be adjusted by firms. Advisors and investors can quickly adapt to the system and focus their resources on the most important items, rather than dealing with thousands upon thousands of false alarms.
The advancements in artificial intelligence technology continue to make risk management software more effective. Some programs are able to predict future risks better by analysing behavioral patterns. Text and voice analysis captures better conversations with clients to provide a holistic view on the entire trade exchange. Firms have better visibility into each interaction that involves a financial transaction. This allows them to identify and then remediate risks.
Remediation is a priority
Remediation is the second important aspect of risk management. After a threat is identified, remediation refers to the actions taken in by wealth management firms and RMs (risk managers). This part of risk management usually includes a thorough follow-up by a representative of the firm, extensive documentation, backfilling of client data, and extensive documentation.
Unsurprisingly, many companies prefer to outsource their remediation operations. A 2020 survey revealed that over 60% of companies are open to outsourcing services related to operational efficiency. An automated technological platform might make the most sense for some companies. Software systems such as Docupace allow RMs to better manage and prioritize remediation steps when dealing with threats. Organizations can save time and stress by using a simplified method of entering notes and tracking complex investigations.
A comprehensive governance system that all employees follow is another important part of risk management. EY recently shared its experiences in creating an ethical culture among employees and establishing processes for dealing with dangerous behavior. Both front- and back-office workers must view compliance and risk management a necessity for smooth business operations. It is not enough to “check the box” when it concerns ensuring safe and transparent trading activities. Employees must be part of an integrated workflow with clearly defined roles and practices that help to manage risk.
Building a Risk Documentation Procedure
A documentation requirement is a key component of any healthy risk management system. Many federal regulations and internal procedures require that firms include documentation of all incidents related to risk management. This process was very cumbersome in the pre-digital age. Financial advisors and risk management specialists often had to deal with mountains of paperwork and rows upon rows of filing cabinets. New technology has made it possible to speed up the risk mediation process for trading threats.
Docupace recognizes the importance of investing into a digital system that organizes, stores, and maintains documentation. DMS (document management software) can be a great way to attract and retain top talent. Financial advisors are great at working with clients and should avoid any work that takes them away form building relationships and making trades. Docupace solutions make it possible for this to happen in a consistent, reliable manner.
Risk management is complex and requires constant organizational adaptation. A firm’s ability to be flexible and resilient in its risk management process will make it more able to identify and respond to potential threats that could lead to financial and human resources costs. Companies should not take lightly the importance of all three elements of a risk management program – identification, remediation and documentation. Docupace set out in order to create a robust technological solution for this complicated and labor-intensive process. We strongly encourage all of our clients, both current and future, to continue research and invest in this area of business operations.

Ryan George is Docupace’s Chief Marketing Officer. He is responsible for brand awareness, early-stage sales pipeline and content strategies. He also provides industry insights, customer and customer insight, internal and externe communications, design, and event planning. George is active in leadership roles in the marketing communications and financial services communities. He is a member of Forbes Communications Council, an invitation only, fee-based organization that includes senior-level communications and public relation executives.

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