Focusing solely on cutting costs can actually cost more, recent research found, as banks open themselves to greater risk exposure by focusing process automation strategies primarily on reducing expense and avoiding the ire of regulators rather than developing a view of risk across the enterprise.
A paper from the Economist Intelligence Unit, sponsored by SAP, says this conservative approach has actually increased enterprise level risk even as risk management practices improve in specific silos. It’s a phenomenon that in the future will likely lead to greater deployment of SaaS-enabled technology, as well as more traditional end-to-end middleware solutions that can improve integration of risk management across an entire bank and clean up where prior automation strategies fell short.
“Banks are were early leaders in automating risk management, but there’s still room to improve on the enterprise level,” says Rakesh Shetty, vp of financial services for SAP.
This enterprise-level risk management lag is mostly due to prior automation of legacy accounting systems that run on different platforms across different departments. But that’s caught many banks in a credit risk bind, as complex financial instruments designed to mitigate risk by spreading it across departments has actually exposed banks to the opposite effect.
“For example, collateralized debt obligations combine cross-division risk. That’s where the data semantics are a real challenge,” Shetty says. “That’s what’s now putting the spotlight on cross enterprise risk management.”
There are some leading indicators that banks may be changing their automation strategies, as an EIU survey tied to the paper found cost reduction came in a distant third among the benefits of automating financial processes. The majority of respondents found elimination of errors due to manual processes and data integrity to be the biggest benefit.