1st line automation required now

Every new piece of regulation and every market innovation demands a big programme to incorporate it into banks’ non-financial risk management frameworks. Often that programme delivers a huge number of new controls or enhanced controls that have to be woven into BAU. The 1st line must therefore come up with new ways of making control frameworks more efficient and, increasingly, that means, automation. With limited capacity and budgets, increasing team sizes is not an option – and human teams cannot be scaled to meet the coming challenges even if budgets rise significantly.

The 1st line needs to automate and make things more efficient to free up that capacity and then apply that capacity to the next thing in the controls pipeline or your existing portfolio to upgrade it to the new regulatory expectation. If the 1st line doesn’t automate, it will struggle to cope with the challenges ahead.

One problem is straightforward: particularly at a time of economic and geopolitical turmoil, the focus on financial risk that always threatens to crowd out non-financial risk management is likely to be magnified. Getting senior management attention for non-financial risk management will not be easy in a downturn.

“Financial risk is being managed by the desks every day, within the day, multiple times a day. Financial risk tends to dominate people’s thinking of where to invest. Non-financial risks tend to be more spread out. You're always talking about potential risks and potential scenarios that haven't yet always crystallised. Sometimes they never crystallise. People's thinking tends to be: it hasn’t happened, therefore it's not as big a risk. However, when things do happen, everyone says ‘how on earth did that happen and why did we not prevent it?’,” said one attendee.

It’s also the case that the 1st line can spend significant amounts of money without seeing benefits fast enough for those used to the ROIs of investing in a new financial product or team. The next challenge for the 1LOD may be budgets. But if automation can happen quickly, the efficiency savings can be reinvested in further improvements. Automation is the only way to scale to the coming challenges and release the money needed to do it.