Digital transformation and integration with Enterprise Risk Management
Digital transformation and integration with Enterprise Risk Management
Fri 16 Feb 2018
Digital transformation has expanded the need for security, continuity and resilience. Today’s business must embrace an enterprise risk management strategy that includes legal, regulatory and political considerations.
Enterprises today face a significant level of security challenges across their organizations. IT is no longer a secondary priority; it is now at the very heart of the enterprise and is becoming more complex. In the current landscape, security considerations have grown from preserving data confidentiality and maintaining core applications and networks to become a much larger conversation around managing organizational risk and exposure, including cyber resilience and readiness in the face of attacks.
Digital transformation presents new risks which requires companies to have complete visibility across their traditional and cloud environments, extremely well-defined access controls and owners, and even separate security strategies for on-premises systems and cloud applications. Hence digital transformation discussions should include decision makers such as chief risk officer, CIO, CEO and line-of-business executives.
In today’s world, security risk assessments is a necessity and should be embedded into all applications as the first line of defense, at the outset of any project. Industry best practices have developed an appropriate DevSecOps approach – where security is considered as code and written into the application to make this possible.
However, security considerations have grown from preserving data confidentiality and maintaining core applications and networks to become a much larger conversation around managing organizational risk and exposure, including cyber resilience and readiness in the face of attacks.
IT don’t own the applications anymore. Multiple business owners and stakeholders are building/moving business critical applications to the cloud. As agile methodologies are adopted and cloud infrastructure removes the inertia in spinning up and testing new services, how do security strategies evolve to reflect this agile approach?
To become resilient in today’s dynamic business environment, IT, cybersecurity professionals, application developers and CRO must engage in ongoing dialogue about the balance of risk versus opportunity. To balance these risks and rewards, stakeholders will need to consider the organization’s overall strategy, risk appetite, new business opportunities and current challenges.
CRO’s are incorporating discussion about cyber risk and other threats into the overall business strategy is much more effective than simply reacting to the latest “cyber scare.”
While it may be difficult at first for enterprises to gain a transparent view of threats, it is more likely to be achieved when concerned stakeholders engage in timely, ongoing and proactive risk dialogues. For instance, a move to the cloud might expose the organization to new cyber-risks, but it can also deliver huge gains such as increased capacity, greater flexibility and reduced capital expenses.
Digital transformation changes business models by enabling new types of interactions across the enterprise and with customers, partners and suppliers. These are obviously good outcomes, but these new connections also mean new external threats and a new risk profile. This is where preparedness becomes crucial. We advise clients to adopt a structured approach to cyber resilience, where security is built into the fabric of the enterprise right from the start, rather than being bolted on at the end — or worse, after an incident happens.
Any successful digital transformation journey must involve greater cooperation and understanding between IT decision makers and business decision makers. The former need to gain the trust of the latter to efficiently and effectively deliver what is needed, when needed, so that IT and the business establish strong, collaborative relationships.
In today’s era of digital transformation, being proactive about security by constantly identifying, assessing, monitoring, preparing incident response teams and cyber crisis management teams couldn’t be more relevant.
As cyber-attacks increasingly threaten every aspect of business and grow in volume and scale, companies are required to address cybersecurity risk holistically, integrating it more aggressively into their enterprise risk management.
In 2017, cyber attackers created havoc through a range of levers, from phishing attacks that influenced political campaigns to ransomware cryptoworms that infiltrated operating systems on a global scale. With the growth of the Internet of Things (IoT), we have also witnessed a proliferation of distributed denial-of-service (DDoS) attacks on IoT devices, crippling the device’s functionality.
In 2018, a heightened cyber exposure is anticipated due to a convergence of three trends:
- first, companies’ increasing reliance on technology;
- second, regulators’ intensified focus on protecting consumer data; and
- third, the rising value of non-physical assets.
Such heightened exposure will require an integrated cybersecurity approach to both business culture and risk management frameworks. Chief risk officers are taking center stage to manage cyber as an enterprise risk.
Enterprise risk management (ERM) has emerged as a best practice in gaining an overview of strategic, financial and operational threats, and in determining how to mitigate and manage those risks.
A comprehensive approach to risk management is important because it helps management comprehend the true potential of threats and allows organizations to address the cumulative nature of risk.
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The Impact of Robotic Process Automation in Financial Services
Robotic process automation (RPA) is software that sits on a PC or workstation and is programmed to mimic the activities that a member of staff would perform. It will open applications, copy and paste data, and follow predefined rules. A robot will complete activities three to five times faster than a person. Customer satisfaction can […]
Banking: crisis, what crisis?
The rapid collapse of one of Switzerland’s most emblematic banks, following the demise of tech lenders on America’s west coast, has raised concern over banking stability. What are the consequences for the sector, the economy and for society? Gregory Marchat, Global Head of FS Advisory, and Emmanuel Dooseman, Global Head of Banking and Capital Markets, […]
Conduct Risk should not be underestimated during IBOR Transition
With little more than two years to go, Libor’s cessation date continues to near. The voluntary agreement of panel banks submitting to Libor will conclude at the end of 2021, from which risk-free rates (RFR) are expected to replace Libor and similar indices. Are corporates paying enough attention to Libor updates? Libor’s cessation should be […]
Is SOFR the ultimate replacement for USD LIBOR?
Financial market participants – at least the largest ones – are actively preparing for the expected discontinuation of the London Inter-Bank Offered Rate (LIBOR) after 2021. Transitioning towards a LIBOR-free world is a challenge that requires the involvement and coordination of the whole industry in order to find appropriate solutions to replace the 35 different […]
Is Asia on its way to IBOR transition?
With Libor’s cessation date at the end of 2021 looming, global regulators are hastening their IBOR fallback strategies. Yet while market momentum has increased for multiple published RFR indices, among them the GBP SONIA, the EUR €STR, and the USD SOFR, Asian economies, some of which rank among the world’s largest, continue to lag. While […]
Do Asian market Libor preparations pose systemic risk to world markets?
Since Libor was first used in financial markets in 1986, it has become the foundation of the global interbank funding market. However, regulators ruled that Libor’s volatility during the last global financial crisis (GFC) and a rate-rigging crisis in 20121 involving the world’s largest banks exposed a fundamental weakness with the rate’s publication methodology. Yet, […]
IBOR transition: Fallback language developments
The expected 2021 disappearance of LIBOR requires robust fallback language for cash products and derivatives alike. Industry associations have taken initiatives to reform the historic fallback language of securities, with ISDA proactively leading the way on derivatives and national working groups proposing enhancements for cash products. While the derivatives market is expected to be harmonized […]
Covid-19: Major risk considerations for the banking sector
As we continue to feel the effects of the global pandemic, the banking sector, like many other sectors, now faces unprecedented uncertainty about the economic outlook ahead. While banks go into this pandemic in a stronger position than the global financial crisis of 2008, the current environment presents particular challenges and disruption to standard accounting […]
ARRC acts for a smooth IBOR transition
The Alternative Reference Rates Committee (ARRC) continues to support market participants in their efforts to transition from USD London Interbank Offered Rate (LIBOR) towards the Securities Overnight Reference Rate (SOFR). Following the Financial Conduct Authority’s (FCA) March 2020 statement that the expected LIBOR cessation deadline remains unaltered – i.e. end of 2021 – ARRC published […]
Progress on transitioning to SONIA
The Risk-Free Rates Working Group (RFRWG) published an update on the impact of COVID-19 on the timeline for firm’s plans to transition away from GBP LIBOR on the 29th April. While the central assumption of LIBOR’s publication being ceased after the end of 2021 remains intact, the Working Group has amended the timeline for the […]
Is SOFR a strong enough USD LIBOR alternative?
With COVID-19, being declared a pandemic on March 11, 2020, financial institutions have had to shift most of their resources to mitigate the risks that have arisen. This has adversely affected important activities, one of which is market participants’ efforts to detach from LIBOR before its cessation at the end of 2021. As a result, […]
Can Africa’s banking sector maintain its growth momentum?
With more than half of the world’s fastest-growing economies located in Africa1, the continent’s economic outlook is a positive one. Average annual GDP growth since 2000 is over 5%, placing Africa as the second-fastest growing economy behind Latin America. Real GDP growth, estimated at 3.4% for 2019, is projected to accelerate to 4.1% in 2021. […]
IBOR Transition: modelling of SOFR risk factors
One of the major challenges of IBOR transition is the availability of historical data on alternative risk-free rates (RFRs) required to implement interest rate model changes or re-calibration. With the Secured Overnight Financing Rate (SOFR) only published since April 2018, the available time series do not provide enough observations for risk modelling. Adding to that, […]
IBOR transition and FRTB cross dependencies highlighted
The revised market risk framework – also known as the Fundamental Review of the Trading Book (‘FRTB’) – not only impacts an institution’s regulatory capital charge calculation for market risk, but also affects operational, governance and business strategies. FRTB brings significant change. With the aim of harmonising capital standards for market risks across jurisdictions and […]
IBOR transition: impacts of the SOFR discounting switch
An important milestone in the IBOR transition is the change in rates used by LCH and CME for discounting and Price Alignment Interest (PAI) calculations for USD OTC cleared swaps. Indeed, on October 16, 2020, they moved from using the daily Effective Federal Funds Rate (Fed Funds) to the Secured Overnight Funding Rate (SOFR) for […]
IBOR Transition: Modelling RFR term rates to price IR derivatives
One of the anticipated challenges in the transition from IBOR rates to risk-free rates (RFRs) is the management of its impact on quantitative models. The ones currently used for pricing IBOR-linked financial instruments account for term rates which are “forward-looking”. The RFRs replacing the IBORs are all overnight rates. This means that a term rate […]
A Tax Playbook for the Digitalised Economy (Part 1)
In a series of articles aimed at promoting debate on the evolution of international tax regimes, Michael Lennard, Chief of International Tax Cooperation and Trade in the Financing for Development Office (FfDO) of the United Nations, discusses the tax-related challenges governments, professionals and practitioners face. In the first of this two-part article, Mr Lennard expresses […]
A Tax Playbook for the Digitalised Economy (Part 2)
In a series of articles aimed at promoting debate on the evolution of international tax regimes, Michael Lennard, Chief of International Tax Cooperation and Trade in the Financing for Sustainable Development Office (FSDO) of the United Nations, discusses the tax-related challenges governments, professionals and practitioners face. Following on from the first article on this topic, […]
Can regulatory systems come to terms with Facebook’s stablecoin?
Facebook’s ambition to create a transferable global digital coin between users on the social media giant’s messaging platforms WhatsApp and Messenger has been controversial from the outset. Perhaps not surprisingly, the backlash from regulators around the world was substantial from day one. The world’s leading economies were less than enthusiastic of the possibility of a […]
Assessing the impact of sustainable finance on insurance entities
This article is part of the series covering the impact of sustainable finance on the insurance sector. Read further:Part 2: How the insurance sector is meeting ESG challengesPart 3: Developing a toolkit for responsible investment decisions Amid a global pandemic and a rising threat of climate change, today’s society expects financial organisations to uphold strong […]
How the insurance sector is meeting ESG challenges
This article is part of the series covering the impact of sustainable finance on the insurance sector. Read further:Part 1: Assessing the impact of sustainable finance on insurance entitiesPart 3: Developing a toolkit for responsible investment decisions When taking environmental, social, and long-term asset portfolio issues into consideration, insurance companies must assess the specific risks […]
Developing a toolkit for responsible investment decisions
This article is part of the series covering the impact of sustainable finance on the insurance sector. Read further:Part 1: Assessing the impact of sustainable finance on insurance entitiesPart 2: How the insurance sector is meeting ESG challenges Clarity of information provided to various stakeholders is a growing issue for financial organisations. Despite the efforts […]
Raising the bar
One of the key takeaways of integrated reporting is that non-financial information ultimately has an impact on a company’s value. It’s for this reason that insurance giant Generali – an international Group based in Italy – prefers to use the term pre-financial rather than non-financial information. For Massimo Romano, who leads Generali’s Group Integrated Reporting […]