Building Operational Resilience - Stewart Griffiths, Albany Group

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What does good Operational Resilience look like? Albany Group CEO Stewart Griffiths says counterparty risk management practices must evolve into a technology solution to keep up with the demands of modern-day business and a constantly changing regulatory framework. 

What’s the challenge?

Exposure associated with distribution, regulatory reporting and operational resilience has been growing for financial institutions for several years. Rightly so, regulatory demands are constantly evolving with increased scrutiny and complexity to protect customers and evolving customer’s needs.

The current business climate dictates that companies need to engage with an ever-growing list of counterparties: from brokers to cover holders, TPA’s, managing agents, delegated authority and claims management firms. Navigating these lists along with the complexities of different jurisdictions can be exhausting.

Additionally, all of this must be conducted within a regulated framework with clear documentation demonstrating how outsourced relationships have been managed along with evidencing a clear audit trail of the process. 

What’s the risk to insurers?

Without robust management and oversight of these relationships’ insurers can become vulnerable to a multitude of credit, legal, sanctions and commercial risks. It is critical that risks are identified, understood and mitigated.

Due diligence is generally carried out at the very beginning of a third-party relationships, along with some form of annual review or as often is the case, not reviewed at all. With ever increasing regulatory requirements this approach is simply not good enough and with accountability now shifting there is a clear drive from regulators and an emphasis on personal responsibility.

This places the onus on senior management to ensure they are operationally resilient and aware of regulatory and legal risks, in advance of them escalating into critical business issues. 

How does the industry need to change? 

Counterparty risk management is not new. The insurance market has been aware of the challenges for a long time. Businesses have done their best to stay on top of and manage the requirements.

However, in the fast paced, modern and diverse world; along with advancing technology; the world of emails; spreadsheets and static Q&A documents; teams are drowning under administrative burden because processes are slow and inefficient. They are cumbersome and at times almost impossible to track and audit.

Organisations need to move with the times and embrace new technology to enhance their performance and countability in the industry. Deploying regulatory software is an effective, proactive, efficient, and responsive approach to minimising risks and preventing potential crisis within businesses.

Along with third party risk, organisations must factor in fourth party risk including the entire supply chain and global relationships across multiple jurisdictions. These are now viewed as normal and business as usual relationships and must form part of organisations operational resilience along distribution chains.

This is becoming increasingly complex, because now, more than ever, it has become almost impossible for the traditional, manual due diligence and counterparty management processes to work. They are becoming obsolete; businesses need automation to grow. 

What is the key to good operational resilience?

The key to good operational resilience and risk management is to identify key risk indicators quickly and efficiently before they escalate. Through our software Conect we have the insight to notice several patterns. One which we often refer to is the Carillion effect.

You are probably aware of what happened with Carillion and 18 months prior on the build up to its liquidation. The collapse of Carillion demonstrated the importance of identifying issues and being proactive before tremors are felt within companies bottom line and averting problems before they become terminal.

Manual due diligence might have noticed some of the problems the company was facing. However due to the sheer volume of data, the time frame to capture it and take remedial action, manually flagging and identifying these kinds of problems in advance is considered impractical and almost impossible.

From the patterns we have noticed, we have coined the term the ‘speed gun effect’. We have clearly been able to see improvement in counterparties when they know they are being proactively monitored and regularly engaged with.

The results of this can be evidenced throughout the business in terms of engagement, good governance, performance, evaluation and value added services. Through automation improvements happen almost instantly.

So why do organisations need to embrace evolving 21st Century technology?

Technology will be the key driver of any successful and robust operational resilience plan and the most effective way of managing counterparty risk in real time.

As the regulatory environment changes and counterparties continue to evolve, only user configurable technology in a truly no code environment will meet the needs of a modern insurer seeking to manage risk and achieve a sound governance framework. 

How is Albany’s technology supporting organisations with building operational resilience?

Albany’s technology drives key efficiencies delivering not only real-time monitoring but monitoring that is specifically defined by the user for the needs of the business. It will remove the burden of logging into multiple systems to manually collect information, helping to make informed decisions by aggregating several data sets together for automated analysis.

It enables user configured workflows, alerts and risk scores, unique to their own departments and risk appetites along with centralised collection for MI. This data will not be static; PEP’s sanctions and financial indicators change constantly; and alerts can be set depending on each company’s risk appetite. 
Albany’s solution ‘Conect’ will automate onboarding, workflows, checks, alerts, due diligence and proactively in real-time monitor any entity within it. By understanding your entire supply chain, identifying and assigning them into tiers, means that potential issues are alerted almost in real time as a change occurs. This means clearly defined workflows are automatically pushed directly according to their tier.

However, the effectiveness of any automated approach is not just determined by external data sources, credit risk score or sanctions; it should also be complimented by user collected data like interactive assessments and Boolean logic driven Q&A’s that are centralised and audited. Only then are you starting to build an effective and future proof monitoring system.

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