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![“Emerging risks may be issues that are
perceived as potentially significant, at least by
some stakeholders or decision-makers, but
their probabilities and consequences are not
widely understood or appreciated.”
“Likelihood of a new [event] causing harm in a manner that is not apparent,
assessable or manageable based on current approaches to risk
assessment and management” (Adapted from Ramachandran, 2011)
Definition
1. Emerging risks](https://image.slidesharecdn.com/theroleofaiinidentifyingemergingrisksinfinancialservicesdatamaranfinal17072019-190731144031/75/The-role-of-AI-in-identifying-emerging-risks-in-financial-services-3-2048.jpg)
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The role of AI in identifying emerging risks in financial services
- 1. The role ofAI in identifying emerging risks in financial services Maeva J. Charles Partnerships & Technical Director Datamaran [email protected] www.datamaran.com Data Management and Analytics in Financial Services Summit 17th July 2019
- 2. Agenda 1. Emerging risks Whatare they and why are they important? 2. Role of AI How can it help, especially in Financial services? 3. Case study The example of Dutch group ING
- 3. “Emerging risks maybe issues that are perceived as potentially significant, at least by some stakeholders or decision-makers, but their probabilities and consequences are not widely understood or appreciated.” “Likelihood of a new [event] causing harm in a manner that is not apparent, assessable or manageable based on current approaches to risk assessment and management” (Adapted from Ramachandran, 2011) Definition 1. Emerging risks
- 4. A subcategory ofemerging risks 1. Emerging risks ESG (Environmental, Social, Governance) risks Non-financial risks Sustainability risks Emerging risks or or
- 5. No economic risks inthe Top 5 over the last 3 years Beyond economic risks 1. Emerging risks
- 6. “The International Organizationof Securities Commissions (IOSCO) encourages issuers to consider the materiality of ESG matters to their business and to assess risks and opportunities in light of their business strategy and risk assessment methodology. “ “As the global industry body for exchanges, the WFE’s new Principles for Sustainable Exchanges make clear that sustainability is the new ‘business as usual’ for exchanges. “As with any group of risks, integrating ESG-related risks into ERM enables organizations to realize long-term value.” What is driving this ESG shift? 1. Emerging risks
- 7. 1. Emerging risks Recentbinding ESG-related laws Waste manage -ment Climate change Human rights UK Modern Slavery Act EU Green Taxonomy Single use plastic bans ? US Congress hearing on ESG disclosure?
- 8. 1. Emerging risks What’snext? Download full report at: https://www.datamaran.com/global-insights-report/
- 9. Compliance Long-term value Reputation Talent attraction& retention Investor attraction & retention Operational efficiency & cost reduction Innovation What are the benefits of better ESG risk management? 1. Emerging risks
- 10. Tangible vs Intangibleassets in market value: 1. Emerging risks Why do ESG risks matter?
- 11. Corporate culture Brand value Workforce Intangible assets Technological know-how Customer data Reputation 1. Emergingrisks What do we mean by “intangible assets”?
- 12. Corporate culture Brand value Workforce Intangible assets Technological know-how Customer data Reputation 1. Emergingrisks What do we mean by “intangible assets”? Examples of risks: - Shortage of skilled workforce - Longevity - Succession
- 13. Corporate culture Brand value Workforce Intangible assets Technological know-how Customer data Reputation 1. Emergingrisks What do we mean by “intangible assets”? Examples of risks: - Theft or loss of intellectual property - Critical infrastructure breakdown - “Born digital” competition
- 14. Corporate culture Brand value Workforce Intangible assets Technological know-how Customer data Reputation 1. Emergingrisks What do we mean by “intangible assets”? Examples of risks: - Data fraud or theft - Unethical use or misuse of data - Third party incidents
- 15. Corporate culture Brand value Workforce Intangible assets Technological know-how Customer data Reputation 1. Emergingrisks What do we mean by “intangible assets”? Examples of risks: - Climate change liability - Man-made environmental disaster - Involvement in social crises/unrest - Human rights issues in supply chain
- 16. Corporate culture Brand value Workforce Intangible assets Technological know-how Customer data Reputation 1. Emergingrisks What do we mean by “intangible assets”? Examples of risks: - Diversity & inclusion - Generation gap - Fair & equal remuneration - Agility - Out-sourcing
- 17. Compliance • business liability •regulatory actions • liabilities arising from past, ongoing, or potentially future legal obligations • reporting challenges • compliance challenges • compliance audits Operational • business disruption • business interruption • data loss • expertise gaps • harm to employee's life and health • high attrition rates • inability to meet time to market expectations • loss of a part(s) of the network or its inaccessibility • loss of license to operate in a specific location • harm to employee's health • negative impact on operating results • operational and strategic lagging • reduction of production • decrease in productive efficiency • …. Strategic • becoming obsolete • boycott • competitive disadvantages • customer dissatisfaction and churn • disclosure of sensitive personal information • employee dissatisfaction • failure to attract and retain talent • impossibility to implement new business projects • lack of motivation • lawsuits / claims • loss of brand value • loss of customer trust • loss of key executives/employees • loss of market share • loss of privacy • loss of regional/international collaborations • loss of strategic resources • … Financial • decrease in cash flow • expenses on litigation/arbitration processes, settlements and judgments • financial losses • fines/penalties • great drop in profits • higher HR costs • higher production costs • inability to generate the expected returns from the shareholders • increased costs • increased R&D costs • large economic damage • large property losses • legal expenses • loss of investment • loss of revenues • lower revenues • … What do these risks have in common? They all have economic consequences 1. Emerging risks
- 18. Challenges of integratingemerging risks into standard enterprise risk management 2. Role of AI Recognize same topic in different terms Provide understanding of context to non-experts Quantify qualitative information Expand the breadth of analysis Scope Data LanguageKnowledge Role of AI
- 19. 2. Role ofAI Recognize same topic in different terms Provide understanding of context to non-experts Quantify qualitative information Expand the breadth of analysis Scope Data LanguageKnowledge Financial services have a broad operating ecosystem, risks can come from: - Your operations - Your clients’ operations > AI allows to automate analysis to enable a broad screening that is manually time and resource intensive to perform Challenges of integrating emerging risks into standard enterprise risk management
- 20. 2. Role ofAI Recognize same topic in different terms Provide understanding of context to non-experts Quantify qualitative information Expand the breadth of analysis Scope Data LanguageKnowledge Many ESG/emerging risks are qualitative > AI allows to assess all types of risks with the same methodology and provides a quantitative score enabling comparison of risks of different nature and relying on different types of data Challenges of integrating emerging risks into standard enterprise risk management
- 21. 2. Role ofAI Recognize same topic in different terms Provide understanding of context to non-experts Quantify qualitative information Expand the breadth of analysis Scope Data LanguageKnowledge Within and across companies, business units approach and talk about the same topic in different ways > AI allows to identify terms pertaining to the same topic and treat them as one Challenges of integrating emerging risks into standard enterprise risk management
- 22. 2. Role ofAI Recognize same topic in different terms Provide understanding of context to non-experts Quantify qualitative information Expand the breadth of analysis Scope Data LanguageKnowledge Emerging risks are wide in scope and risk professionals lack the knowledge to address all of them > AI allows to provide data-driven insights and context that give risk professionals information for risk assessment Challenges of integrating emerging risks into standard enterprise risk management
- 23. “Identify future trends,new business risks and opportunities that could impact ING’s ability to create medium and long-term value” 3. Case study A single approach “To summarize in one line: it’s the convergence of materiality. As the line between financial and non- financial disappears, so too does the need to look upon the concept of materiality between financial and non- financial disclosures differently.” CONTEXT OBJECTIVE
- 24. 3. Case study Anintegrated process Read full case study at: https://www.datamaran.com/customer-stories/ing-materiality/
- 25. 3. Case study Across-team & data-driven strategy Sustainability Risk Strategy
- 26. https://www.datamaran.com/customer-stories/stakeholder- voice-zurich-insurance/ https://www.datamaran.com/customer-stories/ing-materiality/ • Materiality ofESG Issues Takes Center Stage At US Congress https://www.datamaran.com/blog/materiality-esg-us-congress/ • EU Green Taxonomy and NFR Directive update: Key Takeaways https://www.datamaran.com/blog/eu-taxonomy-nfr-directive-takeaways/ • The Non-Financial Reporting Directive: What You Need To Know https://www.datamaran.com/non-financial-reporting-directive/ • Global Insights Report: The Rise of ESG Regulations https://www.datamaran.com/global-insights-report/ References
- 27.
- 28. Thank you! Contact us: [email protected] TheLoom 14 Gower’s Walk, suite 4.8 London, E1 8PY United Kingdom Tel: +44 (0)20 3735 2976 Other offices New York City, USA Valencia, Spain