Industry and academia drive forward financial services risk agenda

Momentum is building following the first collaboration of world-leading expertise from across financial services and academia as part of a new industry-academia partnership with an ambition to tackle key issues within risk.

More than 100 guests attended the offices of our Partner-Level member Lloyds Banking Group in Edinburgh for the first event hosted by the newly formed Scottish Financial Risk Academy Group (a partnership between the Scottish Financial Risk Academy & Scottish Financial Enterprise).

There was great enthusiasm and participation during the panel discussion and workshop session as the group explored the importance of excellence in risk management to individuals, firms, the Financial Services industry and the wider economy.

The SFRA Group SteerCo. have since collated the outputs from the ideation sessions, as outlined below.

We continue to welcome volunteers to join this initiative so if any of the following topics are of interest please contact the group’s Secretariat Peter Brading

Decarbonisation / Green Finance     -           key themes

  • potential mis-selling of products – having clarity on what is ‘sustainable’, what is ‘green' and noting the variables within those categories
  • the differences around creating more environmentally friendly or greener products and businesses themselves behaving in an environmentally friendly way, particularly in the context of upcoming TCFD disclosures. There can be downside business risks in the context of differing ethical standards / attitudes and not being able to satisfy all of them
  • academic research takes a quantitative approach against standards set by a range of inter-governmental and academic bodies, and there are opportunities to develop environmental modelling and translating that into pricing strategies and portfolio construction management
  • the subject matter of business risk around generational change in attitude to these issues is not an area where these seems to be much research at present

It was suggested that a first action for the working group could be to create a dataset of the existing 'green' standards applied to products, which could be analysed in the context of understanding the impact on financial performance and evaluating product premia.

Cyber                                                  -           key themes

  • cyber insurance – scope to expand knowledge in this area, how it fits with broader insurance packages and how to adequately size the risk;
  • reputational risks arising from a cyber-attack;
  • cloud computing and the concentration risks associated with an increase in focus and reliance on the cloud;
  • intelligence sharing – this could be improved between financial services and other technology companies;
  • innovation – noting a balance needed to be made between facilitating new approaches / technologies against managing associated risks within a secure financial environment.

The immediate areas of focus for this workstream will be: risks associated with a reliance on cloud technologies and risk quantification within cyber insurance. 

Credit                                                  -           key themes

  • implications of growing data sources and different data sources becoming available. Leading to increased opportunities more informed decision making, but also additional risks, particularly in relation to GDPR and other regulatory compliance requirements;
  • new data may potentially exclude some customers as existing models are set-up for ambiguous data sets. This requires an assessment of how new data sources could be introduced as well as the impact on customer treatment / customer exclusion; and
  • machine learning is a hot topic at the moment but carries some issues of inconsistency or a lack of certain data being applied to machine learning programmes.

This workstream group is going to develop 'toolbox' of the different methodologies / technologies of machine learning that exist in the market and the advantages / disadvantages of each one for different purposes. They will also review the implications of growing data sources and different data sources becoming available.

If you are interested in the work of the SFRA Group we would be delighted to share more information or welcome you to the SteerCo as a volunteer, please contact the group’s Secretariat Peter Brading.