As seen in The Times, our recent article explores how risk can be the final frontier in innovation.
This article first appeared in The Times.
The stereotype of risk and compliance staff is that they’re the people whose job it is to say no – after all, it is they who ensure businesses don’t find themselves in hot water.
But what if risk were to play a different role? What if it were to work more closely with colleagues throughout the organisation, helping to drive the development of new products and services, and provide a better customer experience from the start?
In fact, this is exactly the future that modernising risk leaders now see for themselves – particularly in regulated sectors such as financial services, healthcare and energy - but elsewhere, too.
“In the past, in many organisations, there has been a disconnect between the risk function working in the abstract and executives in other functions taking day-to-day decisions,” says Fiona Fry, a senior risk partner at KPMG. “Now, however, we are beginning to understand the importance of having a broader set of skills at every stage of the decision-making process. We need risk professionals who understand the benefits and consequences of each course of action, who are able to help businesses achieve their goals.”
At Nationwide Building Society, chief risk officer Julia Dunn puts it this way: “We want to be enablers rather than blockers – if something is in the interests of our members, we want to ensure it can be done”.
Two initiatives at Nationwide provide good examples. First, the building society has been developing an automated digital financial advice service for its members, offering much needed help in an area where other leading high street banks and building societies have been reluctant to commit amid nervousness about regulatory difficulties.
Dunn’s risk and compliance teams have played a crucial role in getting the service off the ground. They have worked with member-facing functions and product developers to understand the challenges from the customer’s perspective and liaised with industry regulator, the Financial Conduct Authority (FCA), using their regulatory sandbox to develop a service which meets the needs of their members.
Second, Nationwide has responded to the FCA’s increasingly tough focus on how the industry deals with vulnerable customers. Here, the risk function has taken the lead in innovation, harnessing its fraud, compliance and credit teams to develop a way to use transactional data to identify customers who may need greater support. This enables the building society to offer help at a much earlier stage.
The second of these initiatives came out of one of the “hackathons” that Nationwide’s risk community runs regularly, leveraging the wide range of skills and experience across its teams to generate innovative ideas. “It’s an example of how our risk teams want to be proactive in solving the problems that members face,” Dunn says. “Problems occur when people don’t work together to think things through – where risk is involved from the start, whether as the project leader or in a support role, the results are much better.”
In fact, Nationwide’s vulnerable-customer initiative is a good example, not only of what a more proactive and innovative risk function can achieve, but also why other organisations must take this approach, argues KPMG’s Fiona Fry. “The customers you might define as vulnerable change every day, and organisations have to be able to respond to that”, she says. “It’s just one instance of how the accelerated speed of doing business, allied to the evolution of new technologies in data and analytics, are changing the way organisations have to organise themselves.”
Risk and compliance departments can no longer afford to be passive bystanders.
In this new world of digitalisation and disruption, no business can afford to operate with its risk professionals as passive bystanders, called in to advise at the last minute. The pace of the marketplace is now too fast for this to be a viable model. They have to become contributors to the innovation process.
For some, this may be an uncomfortable shift. Certainly, it will require new skills: for example, while analytical insight and technical prowess remain crucial, the ability to build constructive relationships at every level will become ever more vital.
Nevertheless, this is an exciting opportunity for the risk function. While acknowledging the stereotype, most risk professionals have never really sought a role in which they spent their time laying down the law to colleagues.
Now risk and compliance departments have a chance to be more creative, collaborative and proactive.
Working alongside the rest of the business – as well as with third parties, including regulators – modern risk functions are at the centre of their organisations’ innovation.