Crypto Risk Office’s Post

Hong Kong Monetary Authority (HKMA) has issued Risk Management Considerations for use of Distributed Ledger Technology by Authorised Financial Institutions. 🏢Since the Government published its "Policy Statement on Development of Virtual Assets (VAs) in Hong Kong" in 2022, the HKMA has noted growing interest from Authorised Institutions (AIs) to explore how they can apply the #DLT that underlies the VA ecosystem to traditional financial market operations. ⛓️The HKMA is supportive of AIs adopting DLT-based solutions so long as they can adequately manage the associated risks. ⚖️In line with its risk-based and technology-neutral approach to supervision, the HKMA’s focus when reviewing AIs’ DLT-related proposals is on ascertaining whether an AI has put in place adequate systems and controls to manage those additional risks that may arise due to DLT adoption. • To facilitate AIs’ adoption of DLT solutions, the HKMA has set out in this note: (i) the key issues that it will typically consider when evaluating an AI’s DLT-related proposals; and (ii) the competencies and conditions that it would generally expect an AI to demonstrate and/or fulfil under each area. 📑These considerations are non-binding, non-exhaustive and will continue to evolve as the market and related technologies develop. Key considerations A) Governance: Board and senior management assume full responsibility for an AI’s adoption of DLT and for adequately managing related risks B) Application design and development: (i) Right DLT network selected for a given application (ii) #Smartcontracts are “fit for purpose” (iii) Understand and mitigate potential legal risks (iv) Effectively manage third party-related risks (v) Safely enable interoperability and connectivity C) On-going maintenance and monitoring: (i) Establish level of cybersecurity commensurate with traditional technology applications (ii) Securely manage private keys (iii) Ensure compliance with data privacy and protection requirements (iv) Tailor contingency planning and testing arrangements FinStep Asia King Florian Alex Efi Neil John Angelina Kristi Karena Urszula Malik Sharat Prasanna Monica Richard Medhy Malcolm Benedicte Nitish Yvonne

Mars Global Solutions-TCSiON Risk management in the financial sector is paramount for maintaining stability, safeguarding investments, and ensuring the integrity of the financial system as a whole. Here are some key components and strategies involved in risk management within the financial sector: 1. **Identification of Risks**: The first step in risk management is identifying various types of risks that financial institutions may face. These risks can include credit risk, market risk, liquidity risk, operational risk, legal and compliance risk, and strategic risk, among others. 2. **Risk Assessment and Measurement**: Once risks are identified, financial institutions assess and measure the potential impact and likelihood of occurrence for each risk. This involves using various quantitative and qualitative methods, such as stress testing, scenario analysis, and value-at-risk (VaR) models. 3. **Risk Monitoring and Reporting**: Continuous monitoring of risks is crucial to identify any emerging threats or changes in risk profiles. Financial institutions establish robust reporting mechanisms to track risk exposures and communicate this information to relevant stakeholders, including regulators and senior management. 4. **Risk Mitigation and Control**: After assessing risks, financial institutions implement strategies to mitigate and control them. This may involve setting risk limits, diversifying portfolios, hedging strategies, and implementing internal controls and procedures to reduce the likelihood and impact of adverse events. 5. **Regulatory Compliance**: Compliance with regulatory requirements is a fundamental aspect of risk management in the financial sector. Financial institutions must adhere to various regulations and guidelines set forth by regulatory authorities, such as capital adequacy requirements (Basel III), reporting standards (IFRS 9), and anti-money laundering (AML) regulations. 6. **Risk Culture and Governance**: Establishing a strong risk culture within an organization is essential for promoting awareness and accountability regarding risk management. This includes fostering a culture of transparency, integrity, and risk-aware decision-making throughout the organization. Additionally, robust governance structures ensure that risk management processes are effectively implemented and overseen by appropriate management bodies. 7. **Technology and Data Analytics**: Advancements in technology and data analytics play a significant role in enhancing risk management practices in the financial sector. This includes the use of sophisticated risk management systems, artificial intelligence, machine learning, and big data analytics to improve risk identification, assessment, and monitoring capabilities. #riskmanagement #riskmanagementinfinance #riskmanagementinfinancialsector

Global businesses invest billions of dollars annually in Governance, Risk, and Compliance (GRC) functions, dedicating a substantial portion of their workforce to ensuring these critical operations run smoothly. With the evolving regulatory landscape, companies are increasingly seeking cutting-edge technologies to streamline and optimize their GRC programs. While many organizations are actively investing in GRC technologies, they continue to face significant challenges in managing the ever-growing complexity of GRC requirements, including compliance with regulations, risk management, and internal audits. Read more on our latest blog 👉 https://hubs.li/Q02V5Czl0

With a legacy marked by manually intensive tasks prone to error and delays, compliance and risk management are the perfect use cases for pushing large language models (LLMs) to their limits. Anyone who has had to identify and update compliance clauses across thousands of contracts or quantify and manage risks welcomes the many time and efficiency gains LLMs can deliver.

RiskSpotlight Portal: Enabling Organizations with #OperationalRiskIntelligence #Financialinstitutions require a modern #operationalrisk landscape with accurate and actional operational #riskintelligence information. Legacy practices—such as periodic assessments, manual processes, and siloed oversight—are no longer sufficient to manage the complexities of today’s #financialservices environment. Institutions must embrace operational risk intelligence solutions that provide continuous, real-time situational awareness across all risk vectors to mitigate operational risk effectively. Institutions need to invest in operational risk intelligence solutions that integrate data from across the industry and worldwide, providing a single pane of visibility into developing operational risks that can impact the organization. These solutions leverage automation, artificial intelligence, and data analytics to continuously monitor risks, identify emerging threats, and enable proactive risk mitigation. By adopting a full-spectrum, real-time approach to operational risk management, financial institutions can be proactive and not just reactive in forecasting, managing, and mitigating operational risk exposure. RiskSpotlight is a solution provider of #AI-enabled operational risk intelligence that GRC 20/20 Research, LLC has researched, evaluated, and reviewed with financial services organizations using in complex, distributed, and dynamic business environments. RiskSpotlight has developed an operational risk intelligence portal (RiskSpotlight Portal) that leverages AI and subject matter expertise to make operational risk management and the intelligence it needs to be efficient, effective, resilient, and agile. The solution provides an integrated approach to managing the operational risk intelligence lifecycle within organizations, providing a single source of truth on operational risk events and developments external to the organization and their potential impact on the organization. Do you have a question about RiskSpotlight or other risk and resilience management solutions available in the market? Ask GRC 20/20's Michael Rasmussen https://lnkd.in/d4y7iKs3

As it can expected that penalties will be severe if banks are not focusing more on the challenges of integrated risk management a #UnifiedRiskDataManagement Framework is necessary to life up to expectations of European Central Bank ➡️ well summarized main points by Sanjin Bogdan ➡️ a must read for bank #CEO #CRO ➡️ the good news #Aryza has experts and solutions to help you tackle this

The ECB is tightening the screws on risk data management. In the recently published 'Guide on Effective Risk Data Aggregation and Risk Reporting,' regulators criticize numerous banks for focusing too much on costs and implementation challenges instead of the opportunities. The Supervisors are demanding a change of course. Institutions that do not comply must expect severe penalties. The advantages of a Unified Risk Data Management are obvious: → Enhanced Data Quality: Unified risk data management boosts data quality institution-wide, enhancing decision-making and minimizing losses.   → Efficiency in Data Processes: Centralizing data management streamlines processes, cuts redundancies, and accelerates data flow, saving time and costs.   → Regulatory Compliance: Supports adherence to regulations like BCBS 239, RDARR, and IFRS 9, helping institutions meet standards and avoid penalties.   → Improved Risk Reporting: Ensures timely, comprehensive, and transparent risk reporting, improving responses to emerging risks.   → Transparency and Traceability: A comprehensive data dictionary and clear data transformation documentation aid in auditing and compliance checks.   Read More: https://lnkd.in/d4CyBnzT

With the FDIC's proposed corporate governance and risk management standards introduced in October 2023, and the overarching requirement to adopt the Three Lines of Defense Risk Management Strategy, regulators have emphasized the crucial role of business & process owners as the first line of defense. Many are now exploring how AI can bolster their compliance positions. The article below delves into the key concepts of tech empowerment in this area, outlining how AI can enhance compliance efforts and streamline risk management processes.

Some key elements that will be introduced by the new Guide along with inspirational examples from Japanese banks reflecting their longstanding commitment to meticulous risk management, governance practices, and a culture of continuous improvement (Kaizen) 👉 ✔️ 𝗗𝘆𝗻𝗮𝗺𝗶𝗰 𝗮𝗻𝗱 𝗮𝗱𝗮𝗽𝘁𝗶𝘃𝗲 𝗥𝗶𝘀𝗸 𝗠𝗮𝗻𝗮𝗴𝗲𝗺𝗲𝗻𝘁, quick response to changes in the risk landscape, increased agility in handling unforeseen and 𝗲𝗺𝗲𝗿𝗴𝗶𝗻𝗴 𝗿𝗶𝘀𝗸𝘀 such as those associated with AI, 𝗘𝗦𝗚 𝗰𝗿𝗶𝘁𝗲𝗿𝗶𝗮 incorporated in the RMF. 🈶 Mizuho Bank has established an "Innovation Lab" that focuses on leveraging cutting-edge technology and collaborates with fintech startups to develop innovative solutions. One successful project involved developing AI-driven predictive analytics tools that can forecast market trends and detect potential risk factors in real-time. 🈴 Sumitomo Mitsui Trust Bank applies Hoshin Kanri, a strategic planning methodology that aligns the bank’s long-term strategy with its day-to-day operations ensuring that all levels work towards common goals in a disciplined manner and implemented a comprehensive Environmental RM strategy. 🈚 Shinsei Bank has developed a program that systematically incorporates customer feedback into its risk management and product development processes.   🉑 Mitsubishi UFJ Financial Group has pioneered the use of AI to enhance its fraud detection and prevention mechanisms using AI and machine learning algorithms to analyze transaction patterns and detect anomalies in real-time.   ✔️ 𝗥𝗶𝘀𝗸 𝗖𝘂𝗹𝘁𝘂𝗿𝗲, shared values, attitudes, and practices, 𝗶𝗻𝗱𝗲𝗽𝗲𝗻𝗱𝗲𝗻𝘁 𝗶𝗻𝘁𝗲𝗿𝗻𝗮𝗹 𝗰𝗼𝗻𝘁𝗿𝗼𝗹 𝗳𝘂𝗻𝗰𝘁𝗶𝗼𝗻𝘀, 𝗖𝗥𝗢 having a direct reporting line to the board or a board committee, 𝘁𝗿𝗮𝗶𝗻𝗶𝗻𝗴 𝗽𝗿𝗼𝗴𝗿𝗮𝗺𝘀 focused on governance, risk culture, and use of emerging technologies. 🈚 In Japanese banks, consensus decision-making (Ringi) is a common practice. This involves circulating proposals among all relevant stakeholders for review and approval before final decisions. This system ensures broad-based buy-in and collective responsibility and reflects the cultural importance of group harmony (Wa) and collective decision-making. The formalized and careful process of circulating proposals for approval is especially characteristic of Japanese business practices. 🈴 Some traditional Japanese banks incorporate cultural rituals and ceremonies, such as morning assemblies (Chorei), where staff gather to align on goals, share updates, and reinforce corporate values. These assemblies serve to build a cohesive work environment, promote transparency, and ensure that employees are reminded daily of their commitment to ethical behavior and risk awareness. 🈵 Sumitomo Mitsui Banking Corporation conducts annual risk culture surveys to assess the risk awareness and attitudes of its employees. Based on the findings, SMBC implements targeted training and development programs.