International Finance
Finance Magazine November- December 2019 Issue

Keeping global financial institutions ahead of geopolitical risks

Although exposure to geopolitical risks is inevitable for financial institutions on the expansion path, technology helps them mitigate the effects

As the global political landscape becomes more complex and traditional trading blocs are reshaped, it has never been more important for the financial industry to pay close attention to geopolitical risk. This is supported by KPMG’s Frontiers in Finance report on geopolitical change in banking, which highlighted that “as [banks] navigate volatile conditions, they will be well advised to adopt or maintain a more holistic, integrated approach to managing risk and uncertainty.” While little can be predicted, companies need to know what is happening across the countries in which they operate, as well as potential new markets and the regions their supply chain touches.

The nature of the risks that could impact a business vary widely; potential issues or crises are unfolding second by second. These could be anything from trade wars, weather-related disruption, or political unrest. Whatever the cause, such potential risks can have significant implications on business operations and the future direction of companies in the finance sector.

Growth pains of financial institutions

Constantly, executives are faced with challenging decisions, such as which markets to move into or where to locate offices and public-facing outlets. Many of these decisions can see organisations venture outside the confines of their established markets. Therefore, before such decisions are finalised, business leaders must gain insight into both short and long term threats that might impact their business in a given location and the businesses’ ability to operate effectively and keep employees safe.

For example, a natural disaster such as the forest fires in California or the political relationship between relevant countries, as is the case for the US and China at the moment. Macroeconomic issues are critical here, but so too are smaller incidents; both could derail an organisation’s expansion plans, so situational awareness must be comprehensive and holistic.

Changing world, changing data

When it comes to issues such as those outlined above, the theory is easy. Businesses need to know what is happening where they currently, or plan to operate. The practicalities are more difficult. In a world where indicators of unrest can come from anywhere, businesses need to think differently to ensure they are ahead of the curve in identifying and managing risk. Knowing first so they can act faster provides a material advantage.

If we look back twenty years, key risk stakeholders would have relied on scheduled reports and ongoing news bulletins to stay abreast of the global news agenda, and the impact it has on their business. In the digital age, the world spins much faster. In the past five years, the increase and diversity of platforms that global citizens turn to means that social media has been one of the largest – and most powerful – contributors of real-time information that businesses can now include in their awareness arsenal. However, the digital fingerprint of risk now extends far beyond social media.

Event signalling can now come from ship data, aircraft data, and weather sensors as well as social media, and a myriad of other places. The sheer number of publicly available datasets is rising exponentially, and increasingly the difficulty for organisations is to make sense of patterns and exceptions in those data streams. To gain a deeper and more comprehensive understanding of the geopolitical landscape, many business professionals are now turning to artificial intelligence (AI) to help spot the patterns and highlight the issues that matter, without necessarily having to be in the region, the city or the street where an event is happening.

Moreover, by spotting previous patterns and identifying the potential risks within new geographies, finance professionals are increasingly supported by AI in their critical business decision making. While the core function of a real-time alerting platform is to provide situational awareness, data analysis can also help financial institutions spot opportunities for growth.

AI-based risk analysis central to FI growth strategies

Risk departments across financial services companies already understand that geopolitical awareness is vital to both survival and growth in today’s complex world. Armed with the right data, these teams have more security in their decision making. By having real-time insights, powered by AI, financial institutions can benefit from a central core of information on which to make effective and clear decisions, regardless of the geopolitical scenario. Only by embracing these tools will banks and financial institutions be able to mitigate risk, and drive growth and innovation.

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