The financial services industry is facing an increasingly more complex risk environment. Data is being generated more rapidly than ever before and has become one of a business’ most valuable assets. As the range of possible risk and the complexity of these risks are steadily increasing, the focus on compliance has also increased to try to properly manage these.
The rollout of several global and regional financial regulations recently, and many more coming soon, has led CFOs to seek more innovative solutions. Fortunately, many emerging technologies are now sufficiently evolved to help address these regulatory and risk challenges.
For finance, in particular in treasury and risk functions, regulatory technologies (or ‘regtech’), can be deployed to give more control to firms in how they manage their businesses and the associated risks. Regtech is being used to help these firms process large data volumes, especially given the nature of complex, cross-jurisdictional and inter-related calculations. As CFOs, treasurers and risk managers look to new technologies to help better manage their evolving roles, analytics, blockchain and UX design can be especially helpful.
How to approach data analytics for liquidity, risk and finance accounting
Complex data presents complex challenges to financial firms, and this is complicated further when it comes to reporting and compliance adhering to regulatory obligations, such as those under IFRS 9 and Basel III, for very large data sets. To manage these data sets in real time would be impossible for even the most experienced professional to handle manually.
Machine learning (ML) and Natural Language Processing (NLP) can be used to address these challenges. ML uses advanced computer science models, data mining and pattern recognition, coupled with NLP to predict future outcomes because a large amount of historical and real-time data will help the model learn over time. Applying these techniques to large data sets, like the liquidity, finance and treasury data required under Basel III and IFRS 9 can help to improve the reliability and predictability of these data sets.
Data analytics can also be applied to this data in a similar fashion to enable users to run real-time profit and loss calculations at an instrument and account level to address compliance with IFRS 9 and GAAP accounting standards.
Is blockchain the solution to General Ledger Reconciliation?
Due to blockchain’s inherently immutable nature, it is able to bring control and trust into risk processes. In this case, the current general ledger system would be replaced with distributed ledger technology (DLT). This can be helpful with use cases relating to the accounting book of records, and other processes that involve many counterparties. The decentralised DLT could bring together data from the plethora of counterparties in a trusted environment, and this could be used to automatically reconcile transactional data or fill in information into reporting documents based on the inputs on the ledger. This significantly lowers risk, because the blockchain cannot be tampered with and everyone can see a single version of the truth regardless of the distributed nature of the data. Additionally, reporting won’t be subject to human error because of the automation involved in this process.
What would a CFO dashboard of the future look like?
UX design is an important part of building tools and solutions and is especially important for financial services professionals who are dealing with sensitive data that may need to be addressed quickly and will impact decision-making. By leveraging user experience design techniques, critical information can be delivered through really targeted, thoughtful portals that are intuitive to the user.
For example, a tool built for the CFO or treasury professionals might be designed as a single portal dashboard view of information critical to decision-making. This could include data visualisation with easy to read charts and graphics of where risk and liquidity lie at any given moment. The crux of using UX design for data visualisation is that the user can quickly look at the visualisation, read it easily without having to think about unpacking what the visual is trying to communicate, and can then quickly use this information to make informed decisions and go back to work.
Emerging technologies have proven their ability to transform business processes across industries, and is particularly impactful in data-driven, high-risk industries within financial services – especially amidst the wave of new and upcoming regulatory obligations happening in the industry. CFOs and finance treasury and risk professionals can benefit from implementing innovative technologies not just as solutions for clients, but using these internally in their own business processes to gain more control of their businesses and avoid risk and noncompliance.