ORX, which lists 125 of the world’s largest banks and insurers as its members, has called for a crucial overhaul of operational risk practices to keep pace with the rapid growth of digitalisation in the global financial sector. ORX sees this as a unique opportunity to unlock value for firms and customers alike.
In collaboration with 50 senior risk leaders, including heads of operational risk and chief risk officers, ORX sought input on the need for a new vision for operational risk, publishing its findings in the ORX Vision Paper. The consensus among risk leaders is clear: the fast pace of business transformation necessitates an urgent and transformative approach to managing operational risk.
ORX executive director Luke Carrivick said, “Risk leaders emphasised that the industry must be bolder and more innovative to keep up with the rate of change. With constant and increasingly complex threats, a firm’s capability to operational risk well can determine its success or failure.”
The paper’s findings emphasised four areas of transformation. First, the digitalising of existing business which has evolved from being a defensive move to counter the perceived threat of digital challengers to a table-stakes move to just stay in business. Operating at the speed and scale of a digital competitor – and with the same cost profile – is now expected.
Second, digitalisation also makes it possible to create new businesses that are often focused on service- and fee-based business models, leveraging brand, data and technology to create significant new value.
Third, firms increasingly rely on a tightly integrated ecosystem of partners and services providers instead of going it alone. This goes beyond traditional third-party relationships and ‘fourth party’ relationships, where firms have little or no visibility on their suppliers’ suppliers. An ecosystem is significantly more complex than traditional networks, but it has become critical to success.
Finally, this means an increasingly complex environment characterised by the rapid creation of new interconnections within the business, across technologies and between players. The external environment has become more volatile than any current industry leaders have experienced. Economic volatility, political turmoil, technological disruption and changing societal consensus all affect strategic business decisions.
ORX senior board advisor Simon Wills said, “The good news is that by managing operational risk effectively, firms are much more likely to create value. Digital business models are amplifying the importance of reputation, data and technology as critical assets to protect. Firms that adapt and manage these risks well are more likely to succeed, create value and stay competitive.” M