Why banks must embrace RiskTech to manage emerging risks

Industries

Banking: RiskTech adoption will continue to mature

Banks and financial institutions operate in a dynamic environment, contending with continually evolving risks. The need to manage emerging risks such as cyber and IT is adding to the mix.

As they take steps to manage emerging risks, banks must tackle some key aspects including the wide array of quantitative techniques, alternative risk measures and frameworks as well as the need to integrate cyber risk into organizational risk functions.

This report delves into how RiskTech adoption will evolve and mature in the banking and financial services sector and offers insights on ways to manage emerging risks.

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Key findings: Banking

Emerging risks

77% view IT and cyber risks as ‘highly significant’

RiskTech

GenAI and LLMs are widely used with 98% reporting deployment

Spends

95% expect spends on emerging tech to increase or remain the same next year

Climate quotient

Existing methodologies and data inadequate for efficient business decisions

Resilience

Focus on digital resilience, synonymous with operational resilience, is up

A changing risk environment

Banks and financial institutions are struggling with a dynamic risk landscape. Emerging risks such as climate, cyber and IT, supply chain, and strategic risks are compounding the situation.

Rapid digital transformation and increased reliance on digital for business-as-usual has escalated privacy concerns as well as IT and cyber risks (nearly eight in ten firms view IT and cyber as ‘highly significant’ risks). Supply chain risk is another critical area for retail banks due to interconnections with third parties and vulnerabilities in their outsourced ecosystems.

Evolving Risks

Regulations

Increased focus on operational resilience of banking infrastructure

Strategic risks

Over 50% regard industry, tech, and business model risks as ‘significant’

Climate risks

ESG reporting requirements up

Emerging risks

Evaluation from both regulatory and operational resilience lens a must

Obstacles in managing emerging risks

Banks face several issues in effectively addressing emerging risks. Legacy technologies and system vulnerabilities as well as data privacy and security are primary challenges. Absence of a prescriptive model for factoring in climate risk into business decisions and lack of clarity on the data sets to be leveraged has put banks in an unenviable position.

Top Challenges

Regulations

71% view regulatory ambiguity as a big challenge

Technology

68% consider tech a top-three barrier, 23% regard it as the biggest

Data

60% cite data management as a major hurdle

RiskTech and RegTech

Compliance (56%) and data privacy and security (49%) hinder adoption

RiskTech: now and future

Banks have adopted technology spanning dashboards and biometrics for quantification of emerging risks. Incorporating emerging risk data into operations, however, remains elusive, mainly due to the prevalence of varied methodologies and techniques and an absence of clear regulatory direction. While successful quantification will allow banks to deal with strategic problems in various areas, banks lack guidance on the steps to be taken post quantification.

Despite the aforementioned gaps, banks are well on the road to RiskTech adoption, having built significant computational infrastructure.

98% use AI and GenAI/LLMs in some form
57% utilize ML and AI for IT and cyber risk detection
54% report ‘high’ adoption of HPC for risk modeling
50% use GenAI/LLMs for IT and cyber risk
45% leverage HPC for climate risk modeling

Regardless of the wide-ranging overall use of RiskTech, adoption levels are not uniform—our survey reveals that only 30% of banks are ‘mature’ adopters. However, adoption will continue to mature given spends on new technologies are set to increase further over the next two years.

About the research

TCS and Chartis Research jointly conducted a study of banking, financial services, and insurance (BFSI) organizations on emerging risk types and the role of RiskTech. We surveyed 152 BFSI firms, predominantly large and mid-sized firms, of which 82 were banks and financial institutions. Our interview respondents included CEOs, board members, chief risk officers (CROs), heads of IT risk and a range of other risk and regulatory leads.

To support our quantitative survey, we also conducted more in-depth qualitative interviews of 54 institutions spread across banking, capital markets, and insurance. These institutions are distributed across Europe, North America, and Asia.

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Industries

Banking: RiskTech adoption will continue to mature

Key findings: Banking

Emerging risks

RiskTech

Spends

Climate quotient

Resilience

A changing risk environment

Evolving Risks

Regulations

Strategic risks

Climate risks

Emerging risks

Obstacles in managing emerging risks

Top Challenges

Regulations

Technology

Data

RiskTech and RegTech

RiskTech: now and future

About the research

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