Firm up risk management in digital spaceTuesday April 30 2019
A number of insightful articles have been featured by your esteemed paper on the need for the banking sector to amplify their risk management programmes. This is indeed a timely discussion which has relevance to the entire financial services globally. The financial services sector plays an instrumental role and is an indispensable catalyst without which other sectors of the economy would decelerate and stall. A vibrant financial services sector is a key enabler in the growth of any modern economy.
We live in an exciting digital age characterised by rapid discontinuous change. The galloping changes in technology inevitably spawn new risks and complexify existing ones. It is imperative that the banking sector and the larger financial services sector keeps in step with these changes. The risk management philosophy is generally based on the fact that our fate and the future is not hinged on a “karma” that rigidly predetermines events. The financial services entities should own its destiny and not merely exist as bystanders in the face of fast-paced digital advances.
The blockchain technology came in to focus following the publishing of an academic paper entitled “Bitcoin: A Peer-to-Peer Electronic Cash System” on October 31, 2008 by a person (or group of people) under the pseudonym ‘Satoshi Nakamoto’. A blockchain is an electronically distributed database that can securely store recorded information onto individual blocks of data using algorithms that are connected to other blocks of data by means of cryptographic signatures.
The financial services should explore and commercialize the benefits of the blockchain technology given its wide applicability in risk management. The blockchain peer-to-peer framework has the potential to create an immutable audit trail of transactions. This implies deterrence to fraud and significant enhancement to investigative efforts against any fraudulent transactions. The technology can also be deployed to perform financial reconciliations and eliminate the risk-prawn manual approaches. The blockchain creates data records that are difficult to alter. This is just but a tip of the iceberg in the list of potential risk management benefits of the blockchain technologies.
It is possible for the financial services sector to create a robust and impenetrable risk management shield through the emerging technologies. The leadership in these organizations should remain nimble and create a fertile environment ready for continuous positive change. If the financial services sector fails to take due cognizance of the digital revolution and adjust accordingly, then it will inevitably confront enormous challenges and perhaps, eventually, collapse before our very eyes to be replaced by new business paradigms.
Dr Jonah Mosso ACSI
Risk Management & Blockchain specialist