The Royal Commission unearthed misconduct at the major financial services groups, which in turn has led to regulatory changes and increased scrutiny from stakeholders and customers says RMIA CEO Jason Smith.
Risk managers face a “progressively complex environment” over the next year as risk, conduct, and culture become a key focus for regulators, according to the Risk Management Institute of Australasia.
Speaking after last months’ RMIA Conference 2019, held in Melbourne, the RMIA interim CEO Jason Smith said risk culture had become a priority “for regulators, customers, and society at large”, after recent corporate developments in Australia.
Regulators and the Australian government have put greater emphasis on corporate conduct and culture in the wake of the Royal Commission into misconduct in the financial services industry. The Royal Commission unearthed misconduct at the major financial services groups, which in turn has led to regulatory changes and increased scrutiny from stakeholders and customers.
Smith said: “The effect of that [Royal Commission will continue to unfold as communities expect improved conduct and culture. That leads into social risks, and the impact on a company’s social license to operate. Risks in the banking sector have gone beyond compliance issues to social risks in the community, and questioning the integrity of organisations.”
Smith said the Royal Commission and the changing landscape for businesses have led to “increased expectations across the board”, and would require organisations to “embed a strong risk management culture”. Risk managers need to think about how to “deliver that across their organisation with a purpose”, Smith added.
RMIA conference attendees explored a number of themes facing Australasia at this year’s conference.
The impact of being “overwhelmed with data” will require risk managers to think carefully about how they analyse and understand risks, Smith said.
Third-party risks were another top concern for risk managers in the region, Smith said.
“There were good discussions on third party risks and related data risks, and the degree to which third parties might have access to customer data, and how they might leverage that. It is about making sure you have robust governance in place,” Smith added.
The conference also explored the future of risk management and how risk managers will change their methods with new technology, Smith said.
“A key theme was the digitisation of the risk function. That needs to be a core foundation going forward to drive impactful change,” he added.
Risk managers also have an opportunity to drive change through the use of new technology, Smith said.
“There’s a huge opportunity for risk managers to embrace leading technology, for example, data analytics, artificial intelligence, and machine learning, to advance risk intelligence, in parallel with the broader organisational agenda. Many organisations have a digital agenda, mainly customer-facing, but the risk function needs to keep pace with that. The risk management function needs to ensure there’s the right talent pipeline to build those capabilities.”
2019 saw a number of climate disasters hit Australia, including the Townsville flood, and bush fires that recently swept across New South Wales. Smith said climate risk was a significant focus for risk managers in the region, and said risk managers need to look at potential opportunities as well as mitigation.
“Regulators are all becoming more robust in how they provide their prudential supervision. Risk management needs to continue to stay relevant to the organisation. Risk managers need to approach this from the opportunity side, rather than looking at what to mitigate and avoid.”
Smith believes there are plenty of opportunities for risk managers in the year ahead.
“A key theme for 2020 is transformation and optimisation. We acknowledge that organisations have been undertaking risk transformations, particularly in financial services given the increased regulatory scrutiny. Still, organisations need to look beyond that and how to optimise their organisational risk management capabilities.”
He added: “Risk management needs to step up in this operational and regulatory environment. It is becoming increasingly complex for organisations, and that poses a threat around successful execution of business strategy, so risk needs to be there with the leadership of the organisation, providing alternate perspectives to navigate those complexities.”
Over 2020, RMIA will place extra focus on developing a core educational offering for members. Smith wants RMIA to play a role in professionalising the sector.
“We are looking to help the industry advance and enhance its professionalism. There’s a need for robust educational offering for risk managers. We want to ensure the RIAA is seen as a leading institution in the Asia-Pacific region for professional risk management accreditation. We want risk management to be seen as a profession right up there with accountancy.”