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Financial system 13 Dec 2017

Digital transformation as a challenge to risk management

BBVA Group Chief Risk Officer (CRO) Rafael Salinas analyzed the challenges of digital transformation and the rapid evolution of technological developments in risk management at the event entitled ‘CRO Forum,  Rethinking Risk Management’ organized in Amsterdam by RiskMinds International.

Rethinking Risk Management’ is the world’s largest risk management event. Already in its 24th year, this year’s edition had the theme “Navigate regulation. Embrace change. Challenge culture.” For four days, more than 650 CROs, regulators, academics and risk management experts discussed the factors that are currently having the biggest impact on the risk management function. They addressed such topics such as IFSR9, the resolution of financial institutions, stress tests, compliance and fintech, which will become even more relevant in 2018.

Rafael Salinas participated, alongside representatives from HSBC, UBS and Commerzbank, in the panel discussion entitled ‘Is risk management reacting to change quickly enough?’ The participants discussed whether risk managers are – or are not – ready for the overwhelming impact of digital transformation and the pace of technological change. BBVA’s Head of Global Risk Management stressed that this is precisely the main challenge that the risk function faces today.

Rafael Salinas

Rafael Salinas, BBVA’s Head of Global Risk Management

A series of highly relevant issues were brought up during the debate, including the use of artificial intelligence and machine learning. Besides sharing the experience of their institutions in this field, the speakers addressed the cost of adapting to these new techniques and the estimated time it would take to implement them. Other topics included whether supervisors are ready to handle models developed using these new technologies and the existing uncertainties regarding the possibility of using them to develop advanced internal models for calculating capital and/or provisions, which require supervisory approval.

Another topic under discussion was how to adapt the risk management function to Agile work methodologies. Specifically, attention focused on the transition from the current approach –  – mostly based on specialists in specific types of risk – to a methodology that relies on managers with a comprehensive view of the different risks and their interactions..

The panelists analyzed how traditional operational risk management and internal control models can fit in Agile – i.e. non-hierarchical – organizations, and how cybersecurity problems affect the function.

Finally, the panel also addressed the arrival of fintech startups to the financial ecosystem, and the need to ensure fair competition among banks and tech companies, and to integrate two realities with completely different management approaches and languages. The speakers also proposed ‘sandbox’ integration as a way to provide financial service providers with a safe environment to test digital products, and the need to strengthen vendor risk management mechanisms.

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