Success of risk management initiatives will be underpinned by best practice-led spreadsheet management
Henry Umney, CEO of ClusterSeven, offers his views on regulatory and risk management trends in the insurance, banking and financial services sectors for 2018:
- Model risk management will become a top priority
With regulators demanding that organizations adopt an all-inclusive model risk management and governance strategy, many regulations (e.g. SR11-7, ECB TRIM, OCC 2011-12 and more) are now becoming ‘business as usual’ in the banking and financial services sectors. Such a broad sweeping mandate is demanding a robustness around model governance and therefore calling into question the integrity of the data sources that feed the models as well as the effectiveness of controls that currently exist to ensure accuracy. Organizations will need to pull back the ‘governance lens’ in 2018 to take a more holistic view of their model risk management programme. This will allow them to gain visibility and understand the entire ecosystem of applications that surround each and every governance model – as well as the data lineages across the landscape.
- Sarbanes Oxley (SOX) will make a comeback
With the introduction of rules on mandatory audit rotation last year, which require public entities and listed companies to put their audit out to tender every 10 years, and change the auditor at least every 20 years – the emphasis on SOX compliance will make a comeback. This will be an easy win for external auditors looking to make their mark in new client organizations. Additionally, regulators such as the Public Company Accounting Oversight Board (PCAOB) are coming down hard on auditors for audit failures and violation of the Board’s quality standards to enforce SOX compliance by organizations. Faced with potential fines in the region of millions of dollars, auditors will increase their scrutiny of organizations’ internal audit controls over financial reporting, assessing and responding to risks of material misstatement, and measurements.
With many of these processes undertaken in spreadsheets, external auditors will look for ways to deliver against regulators’ demands of more evidence of auditability and control of these applications. Without the adoption of technology-led spreadsheet management of internal audit controls by organizations, they will find it almost impossible to meet the demands of the auditors and regulators alike.
- Regulation will drive data ownership, organizations will realize the value of data for competitive advantage
Most regulations, be they General Data Protection Regulation (GDPR), IFRS 9, BCBS 23,9 SOX, SM & CR, Dodd-Frank or any other, ultimately aim to enforce data ownership and governance to ensure accuracy of financial models, minimize financial risk and protect consumers. While simple in concept, due to the widespread types of data sources and complexity of models, it’s incredibly difficult to get right. It requires a streamlined approach to people, processes and technology. However, those that make headway, will begin to recognize and realize the value of data for informed decision-making and competitive advantage. Due to the extensive use of spreadsheets for data manipulation-related processes, their control and management will be key to such initiatives.
- Organizations will set up temporary business processes to deal with Brexit
While the uncertainty around Brexit continues, organizations will start preparing to deal with Brexit, regardless of the shape or form it takes. Organizations have enterprise systems of course, but they aren’t as flexible and nimble to change, and more so in the current uncertain environment. Spreadsheets will become the default tool that they will resort to quickly respond to changing business requirements for reporting and compliance by setting up temporary business processes/solutions as they plan for every eventuality. An automated approach to spreadsheet management will be essential to ensuring the accuracy and integrity of these critical processes to minimise financial, operational and regulatory risk.
- Major IT-led transformation in the insurance sector is on the cards
As the Prudential Regulation Authority (PRA) increases scrutiny on the insurance sector, insurance firms will need to continue to ensure their Solvency II compliance is embedded into ‘business as usual’. Simultaneously, the introduction of IFRS 17 represents the biggest accounting change for insurers in recent times. Compliance with these regulations will drive IT-led transformation of processes and standardization of modelling platforms will become a major focus for insurers in 2018. As firms set up new enterprise systems and data warehouses as part of their technology transformation initiatives – in the interim – spreadsheets will provide the much-needed flexibility to help quickly establish processes and models for compliance, which will ultimately remain in use for the foreseeable future. Consequently, adoption of automated spreadsheet management will form a key part of the IT transformation initiatives.
- Cloud adoption of risk management solutions will gather momentum
With many regulatory bodies globally, such as FedRAMP, European Union Model Clause, SOC 1 and 2, among others, having recognised Microsoft Azure as a secure platform, the cloud ecosystem for risk management solutions will gather momentum, which will encourage their adoption among organizations. Risk management cloud solution providers will innovatively leverage this ecosystem to expand their offering and delivery options to beyond traditional areas including internal audit, and risk and compliance.
Oil set for steady gains as economies shake off pandemic blues – Reuters poll
By Sumita Layek and Bharat Gautam
(Reuters) – Oil prices will stage a steady recovery this year as vaccines reach more people and speed an economic revival, with further impetus coming from stimulus and output discipline by top crude producers, a Reuters poll showed on Friday.
The survey of 55 participants forecast Brent crude would average $59.07 per barrel in 2021, up from last month’s $54.47 forecast.
Brent has averaged around $58.80 so far this year.
“Travel and leisure activity look set to catch up to buoyant manufacturing activity due to the mix of stimulus, confidence, vaccines, and more targeted pandemic measures,” said Norbert Ruecker of Julius Baer.
“Against these demand dynamics, the supply side is unlikely to catch up on time, leaving the oil market in tightening mode for months to come.”
Of the 41 respondents who participated in both the February and January polls, 32 raised their forecasts.
Most analysts said the Organization of Petroleum Exporting Countries and allies (OPEC+) may ease current output curbs when they meet on March 4, but would still agree to maintain supply discipline.
“With OPEC+ endeavouring to keep global oil production below demand, inventories should continue falling this year and allow prices to rise further,” said UBS analyst Giovanni Staunovo.
Oil demand was seen growing by 5-7 million barrels per day in 2021, as per the poll.
However, experts said any deterioration in the COVID-19 situation and the possible lifting of U.S. sanctions on Iran could hold back oil’s recovery.
The poll forecast U.S. crude to average $55.93 per barrel in 2021 versus January’s $51.42 consensus.
Analysts expect U.S. production to rise moderately this year, although new measures from U.S. President Joe Biden to tame the oil sector could curb output in the long run.
“A structural shift away from fossil fuels” may prevent oil from returning to the highs of previous decades, said Economist Intelligence Unit analyst Cailin Birch.
(Reporting by Sumita Layek and Bharat Govind Gautam in Bengaluru; Editing by Arpan Varghese, Noah Browning and Barbara Lewis)
Japan’s jobless rate seen up in January due to COVID-19 emergency measures – Reuters poll
TOKYO (Reuters) – Japan’s jobless rate is expected to have edged up in January as service industry businesses suffered renewed restrictions on movement to fight spread of the coronavirus in some areas, including Tokyo, a Reuters poll of economists showed on Friday.
While industrial production activity picked up in Japan, emergency curbs rolled out last month such as asking restaurants to close early and suspending the national travel campaign hurt the jobs market, analysts said.
The nation’s unemployment rate likely rose 3.0% in January, up from 2.9% in December, the poll of 15 economists found.
The jobs-to-applicants ratio, a gauge of the availability of jobs, was seen at 1.06 in January, unchanged from December, but stayed near September’s seven-year low of 1.03, the poll showed.
“As the impact from the coronavirus pandemic prolongs, it is hard for firms, especially the service sector, to expect their business profits to improve,” said Yusuke Shimoda, senior economist at Japan Research Institute.
“So, their willingness to hire employees appear to be subdued and it is difficult to see the jobs market recovering soon.”
Some analysts also said the government’s steps to support employment and existing labour shortages will likely prevent the jobless rate from worsening sharply.
The government will announce the labour market data at 8:30 a.m. Japan time on Tuesday (2330 GMT Monday).
Analysts expect the economy to contract in the current quarter due to the emergency measures to counter the spread of the disease.
(Reporting by Kaori Kaneko; Editing by Simon Cameron-Moore)
China’s economy could grow 8-9% this year from low base in 2020 – central bank adviser
BEIJING (Reuters) – China’s gross domestic product (GDP) could expand 8-9% in 2021 as it continues to rebound from the COVID-19 pandemic, Liu Shijin, a policy adviser to the People’s Bank of China, said on Friday.
This speed of recovery would not mean China has returned to a “high-growth” period, said Liu, as it would be from a low base in 2020, when China’s economy grew 2.3%.
Analysts from HSBC this week forecast that China would grow 8.5% this year, leading the global economic recovery from the pandemic.
If 2020 and 2021’s average GDP growth is around 5%, this would be a “not bad” outcome, said Liu, speaking at an online conference.
China is set to release a government work report on March 5 which typically includes a GDP growth target for the year.
Last year’s report did not include one due to uncertainties caused by the coronavirus. Reuters previously reported that 2021’s report will also not set a target.
(Reporting by Gabriel Crossley and Muyu Xu; Editing by Sam Holmes and Ana Nicolaci da Costa)
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