Financial services: a human-centric approach to managing risk

Elona Ruka-Wright | Finastra

A fast-changing world brings both opportunities and threats to the financial services industry. Alongside growth and innovation, the importance of proactively managing and mitigating risk is essential in helping organizations flourish long term. Furthermore, placing people at the heart of your risk management strategy – and empowering them to be active participants in reducing risk – is key.

This article explores just some of the risks facing organizations operating across the financial services landscape today – from economic, geopolitical, strategic, reputational, cyber and technology risk, to regulatory compliance and operational resilience – highlighting the importance of a human-centric approach.

Human risk management focuses on changing behaviors, reducing the likelihood of risky actions. It focuses on making people more aware, responsible, and proactive. This is especially important in the financial services sector where trust is paramount.

Trust

As the financial sector's risk landscape continues to evolve with emerging technologies and changing regulations, institutions face increased pressure to adapt. The potential for human errors can exacerbate vulnerabilities and already fragile processes necessitating a thoughtful, coordinated and proactive approach to managing risks.

Threats can arise from human actions or behaviors both inside and outside the organization. Effective adherence to established standards is crucial – not just for employees, but for partners too.

Culture

Corporate culture greatly influences risk management effectiveness. A security and risk-aware culture – where employees feel empowered to report potential threats without fear of retribution – promotes ethical behavior and accountability and can significantly mitigate human risks and forms the basis for balanced risk-taking. This cultural shift helps embed security practices into daily operations, making employees active participants in the risk management process.

A company's reputation is hard to build and easy to ruin. Ensuring employees understand the important role they play as ambassadors for the brand, and that they are empowered to act accordingly, is essential. Building a strong brand and corporate culture is also vital in attracting, developing, and retaining top talent.

Training and awareness

Regular employee training, tailored to employees’ roles and experiences, helps them to recognize and mitigate risks and lower exposure. Developing clear policies around data handling and security practices and ensuring these are followed up and enforced is critical. Guidelines should be communicated clearly and effectively across the organization to support compliance and strengthen overall security.

Implementing systems to monitor behaviors and identify at-risk actions enables organizations to address vulnerabilities before they lead to significant issues. This proactive approach allows for timely interventions and reinforces a culture of accountability, with everyone working towards common goals – ensuring compliance with regulatory requirements and reinforcing trust with all stakeholders.

Agility in a changing landscape

Geopolitical tensions and economic fluctuations can disrupt markets and supply chains and potentially impact overall business performance. Organizations must proactively assess these risks and incorporate them into their strategic planning process. Contingency planning, the maintenance of robust operational practices and the avoidance of concentration risk are key to remaining agile and resilient. Having tried-and-tested business contingency plans in place that your people are empowered to enact in the case of a critical event is also imperative.

Technological risk is another important consideration – particularly in financial services given the pace at which it continues to transform the industry. The risk of doing nothing, or failure to adapt quickly, can increase competitive threats. While innovation is essential to survival, proactive and balanced risk-taking is key to longevity.

A joined-up approach

Human risk management requires an integrated and coordinated approach. A comprehensive strategy helps in identifying, assessing, and responding to risks holistically, strengthening the organization’s resilience. Managed well, it reduces the potential for disruptive incidents, enabling businesses to respond to crises more effectively and maintain stable operations through adversity, while enabling strategic priorities and prudent risk-taking.

Ultimately, managing human risk across the enterprise is fundamental for sustained organizational success. As threats continue to evolve, focusing on human risk management is not just beneficial, it’s essential to safeguarding the long-term future of an organization.

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