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Maybank guru kl 2014 emerging risks in banking marc ronez presentation_ss

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clarifying the concept of Emerging risks and black swans. List of key emerging risk issues and approaches to manage them effectively.

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Maybank guru kl 2014 emerging risks in banking marc ronez presentation_ss

  1. 1. ARiMI  –  Asia  Risk  Management  Ins0tute   By MARC RONEZ Chief Risk Strategist & Knowledge Leader ARIMI-Asia Risk Management Institute NOTES   MAYBANK – Gurus Series KL 14th November 2014 Emerging  Risk  Issues  in  the   Financial  Services  Industry  &  for  the   World  Economy  
  2. 2. Agenda  for  this  Session       þ Clarifying the Concept of Emerging Risks and understanding its Relevance for the Financial Industry. þ Review of a few Key Emerging Risk Issues that should be on the radars screen of Financial Institutions. þ Exploring the approaches available to help organizations to prepare for and manage Emerging Risk Issues. Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 2
  3. 3. 1 – Clarifying the Concept of Emerging Risk & understanding its Relevance for the Financial Industry   Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 3
  4. 4. Defining  Emerging  Risks   The Definition of Emerging Risk is still subject to many debates.. Our definition is as follow: “A newly developing or changing risk issue that could be potentially very significant in terms of overall IMPACT on an organization, an industry and the economy BUT .. ..which is NOT properly and fully understood in terms of frequency, consequences, velocity, reserving/capital setting and so on.” Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 4
  5. 5. 2  Types  of  Emerging  Risks   1.  Completely New Risk Issues that have never been seen before. (Examples: Risks associated with any Technological innovations such as GMOs, Internet,..- Societal/cultural changes) 2.  Previously Known Risk Issues that are Evolving in unexpected ways with unanticipated consequences. (Examples: Risks associated with changes in U.S. home subprime mortgage market – Changing nature of terrorist threats) Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 5
  6. 6. Example:  Changes  in  the  TransportaBon  Industry  -­‐ Technological  InnovaBon  from  Horses  to  Cars   Types of Changes: Incremental vs Transformational Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 6 Since the beginning 1880s 1910s 2000s Horse drawn vehicle First Cars Modern CarsMass Production On foot
  7. 7. Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 7 “The Threat of terrorist attacks in the United States should be considered low!” Statement by a White House Official, in August 2001 On the 9th September 2001, Al-Qaeda successfully launched the worst terrorist attack on American soil killing almost 3,000 people. Example:  Changes  in  the  GeopoliBcal  Environment  -­‐   Rise  of  &  Changing  Types  of  Terrorist  Threats  
  8. 8. Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 8 ‘Emerging  Risks’  versus  ‘Black  Swans’  events   What is the difference if any?
  9. 9. The  Black  Swan  Theory   Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 9 Theory developed by Nassim Nicholas Taleb (finance professor, former Wall Street trader & philosopher) in his bestseller book published in 2007. To explain Human Blindness to Risk posed by highly improbable events & highlight the importance of these events in human history.
  10. 10. Black  Swan  DefiniBon   ¤  Nassim Taleb defines a Black Swan event as follow: 1.  It has never happened before or extremely rarely (highly improbable events, outliers). 2.  Its take people by surprise as they never imagine of such an event occurring (The Turkey Syndrome) 3.  it carries a massive TRANSFORMATIONAL impact 4.  After its first occurrence, the event is rationalized by hindsight, as if it could have been expected even so it was not (Narrative falsification). Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 10
  11. 11. Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 11 ‘Emerging  Risks’  versus  ‘Black  Swans’   A ‘Black Swan’ is an Emerging Risk Issue That has not been properly identified & hence prepared for!
  12. 12. WHY  Should  you  care  about  Emerging   Risks  &  Black  Swans  CHANGES? 12Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 3 Main Reasons: 1.  It can DESTROY your Organization your organization if NOT appropriately managed 2.  On the contrary, it can lead to tremendous OPPORTUNITIES if well managed 3.  Even with ‘negligible frequency’, What can happen, will happen! (Murphy’s Law)
  13. 13. 2 – Review of Key Emerging Risks Issues that should be on the radars screen of Financial Institutions Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 13
  14. 14. Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 14 The only Constant in Life is... The Certainty of CHANGE
  15. 15. KEY  Drivers/factors:  OrganizaBons  face  a  COMPLEX,   UNCERTAIN  always  CHANGING  environment     Human & Social Factors Political & Regulatory Climate Resources & environmental Factors Economic Environment & market Forces Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 15 Technological innovations Source of both Risks & Opportunities Global Domestic
  16. 16. 16 The  importance  of  IDENTIFYING  the  Key  Long-­‐Term  TRENDS   of  changes  in  today’s  world   Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014
  17. 17. EMERGING  RISKS  :  Categories  and  Key  Issues   according  to  the  World  Economic  Forum   Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 17
  18. 18. EMERGING  RISKS:  Key  Issues  for  the  Financial   Industry  1  to  15  years  +  Horizon  (ARiMI  perspec0ve)   Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 18 Cyber attack, IT failure Disruptive Technological & Business Innovations Terrorism Regulatory changes Human Capital Challenge Political /Social upheaval, war Business Ethics, Fraud Customer changing expectations Credit Availability Infectious Diseases
  19. 19. Potential Impact & Onset Speed of Emerging Risk Issues (Scale description)   19 Potentially catastrophic financial, reputational and/or regulatory impact or critical stakeholder concern Potentially significant financial, reputational and/or regulatory impact and/or important stakeholder concern Potentially moderate financial, reputational and/or regulatory impact and/or moderate to low stakeholder concern Description Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 HIGH MEDIUM LOW Potential Impact 1 to 5 years: Immediate response required 5 – 10 years: Time to get ready > 10 years: Prospective planning Onset Speed (Range start)
  20. 20. Regulatory  pressures  &   fragmentaBon   Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 20 Potential Impact HIGH Onset Speed 3 to 10 Years The implementation of policy reforms by individual jurisdictions around the world reveals increased fragmentation of regulation and markets, threatening to reverse progress toward a more global and coordinated financial services sector and putting a lot of pressure on Banks business model.
  21. 21. Cyber  aZacks/sabotage     Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 21 Potential Impact MEDIUM Onset Speed 1 to 5 Years “..foreign governments, criminal syndicates and lone individuals are probing our financial, energy, and public safety systems every day ... Taking down vital banking systems could trigger a financial crisis.” USA President Barack Obama
  22. 22. Unresolved  sovereign  debt   crisis     Ongoing sovereign debt crises are likely to cause widespread liquidity and growth problems, which may ultimately result in shrinkage of the global financial market. Investors in government bonds are also directly exposed through their securities holdings. Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 22 Potential Impact MEDIUM Onset Speed 1 to 5 Years
  23. 23. Human  Capital  Challenge   Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 23 Potential Impact HIGH Onset Speed ongoing Chuck Prince, Former CEO Citi Group Dick Fuld, Lehman Bros Alan Greenspan, Chairman FED Kweku Adoboli,$2.3 billion loss UBS Jerome Kerviel, Lost $6.9 billion Societe Generale Bruno Iksil, Lost $6.2 billion for JP Morgan Bernard Madoff $50 billion Ponzi scheme Bob Diamond, Barclays Banks are too often Recruiting & promoting the wrong kind of people
  24. 24. Consumer  protecBon  &   growing  liBgaBons     Strengthened consumer protection measures and changing customers expectations & behaviors with the demonization of banking will result in claims and litigation costs far in excess of what could have been expected. Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 24 Potential Impact MEDIUM Onset Speed 1 to 10 Years
  25. 25. Increasing  economic   inequality  &  social  unrest   Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 25 Potential Impact HIGH Onset Speed 5 to 10 Years Violent social unrest can crop up suddenly and may spread rapidly, especially with the help of social media. Resurgence of politically motivated terrorism and move towards more totalitarian forms of governments.
  26. 26. Emerging  infecBous   diseases  &  pandemics     A virulent pandemic could potentially cause shocking level of deaths, months of absenteeism and tremendous economic disruptions Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 26 Potential Impact HIGH Onset Speed 1 to 15 Years
  27. 27. DisrupBve  Technological   InnovaBons   Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 27 Potential Impact HIGH Onset Speed 5 to 10 Years The Rise of Mobile Banking will completely transform the Banking industry business and operating model
  28. 28. “How to gather, manage & use information will determine whether you win or lose..” Bill Gates, Founder Microsoft Big  DATA  threats  &   opportuniBes   Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 28 Potential Impact HIGH Onset Speed 1 to 10 Years
  29. 29. 3 – Exploring approaches available to help organizations to Prepare for and Manage Emerging Risks Issues   Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 29
  30. 30. Nassim  Taleb,  Author  of  the  “Black  Swan  Theory”   Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 30 “Black Swan events are almost impossible to predict.. So instead of perpetuating the illusion that we can anticipate the future, risk management should focus on trying to reduce the IMPACTS of the threats we don’t understand”. ”
  31. 31. HOW  to  Deal  with  Emerging  Risks  /  Black  Swans?   ¤ Do not waste your time trying to to predict Black Swan Events occurrence, ¤ But Instead BUILD: þ Organizational RESILIENCE against the negative ones that will occur and þ the CAPABILITY to LEARN & ADAPT to exploit positive ones to create new opportunities for growth and profitability. Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 31
  32. 32. Build  RESILIENCE  &  SUSTAINABILITY  into  your   Systems  &  Culture   32 1.  Continuous Strategic Anticipation 2.  Organizational Agility & Capability Responsiveness 3.  Continuous Learning Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014
  33. 33. Focus more on Strategic Anticipation instead of looking solely at the Past   Time Range of Possible FUTURE(S) Threats Performance Opportunities 33Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 TODAY Past TRENDS 1 -Traditionally Risks are assessed largely reactively based on past data 2 – instead Thinking in terms of prospective scenarios analysis must play an increasingly important role
  34. 34. The  ObjecBve  of  Risk  Management  is  that  …   .. an organisation takes risk KNOWINGLY and manage risk exposure INTELLIGENTLY .. in a controlled (or balanced) manner so that the business is viable for a longer term (SUSTAINABILITY) while meeting the expectation of all the relevant stakeholders by CREATING SHARED VALUE (i.e., shareholders, customers/policyholders, employees, regulators, rating agencies, suppliers, etc). Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 34
  35. 35. SP  –  Strategic  Planning   Develop  opportuniBes   &  create  value   BCM  –  Ensure  Business   ConBnuity  &  Societal   Security      INTELLIGENT  ERM  with  Strategic  Planning,   OperaBonal  Management  &  BCM   35 - + Target Performance Expected Potential Losses Expected Potential Opportunities Unexpected Catastrophic Losses Transformational Blue swans Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 Catastrophic Losses Black swans Unexpected Opportunities ERM  –  Create  Shared  Sustainable  Value   LOSS OperaBonal   Management   GAIN
  36. 36. Road  Map  to  Managing  the  Risk  Life  cycle  from   Emerging  Risk  Issues  to  Crisis   Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 36
  37. 37. Coping with Black Swans - Don’t Swim Naked! þ Think Long-term as you are in the long run (business model & adequate financing) þ Build in Redundancies for important resource & process þ Restrict drastically the use Financial Leverage – to avoid exposure to large losses þ Save for Rainy Days (create buffers in ‘good times’) þ Recruit and promote the right people & culture þ Develop a real Risk-adjusted Performance Management system – to motive people to take risk effectively þ Nurture a Risk-Aware Culture to support resilience & the capacity to Learn and Change þ Strengthen your crisis management & business continuity programs & Stress-test your systems regularly 37Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014
  38. 38. Health  Check  for  your  OrganizaBon  Emerging  Risk   Management  (example)   38 Q1 – How do you grade your organization’s emerging risks identification, measurement & monitoring practices? Are scenario analysis & stress testing performed? Q2 – How confident are you that you would be able to detect, understand and mitigate an emerging risk better and before your competitors? Q3 - How well is the topic of emerging risk communicated and understood throughout the organization? Q4 - What level of importance do your executives – and your managers – place on emerging risk? Does it influence strategic & operational decision-making? Q5 - Are there significant specific resources (human, financial, ..)devoted to emerging risk issues and their management? Q6 - Do you believe that any of the next 10 years could resemble the past five years? Q7 – Are Business Continuity and Disaster Recovery plans defined, tested and regularly updated? Q8 - How is incident and crisis management handled in your organization? Any post mortem analysis performed? Criteria for Emerging Risk Management Maturity CRITERIA ✓ ✓ Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 ✓ ✓ ✓ ✓ ✓ ✓ Time focus on Emerging Risk Management!
  39. 39. Marc  Ronez  -­‐  Chief  Risk  Strategist  &   Knowledge  Leader  at  ARiMI  -­‐  Asia  Risk   Management  InsBtute   An ERM & Governance expert with 20 years of experience both as a practitioner, trainer & coach for large MNCs, Governments & Charities. Marc has an MBA from the University of Chicago GSB, an MSc in Insurance & a LLM from the University of La Sorbonne What do I do? Help managers & leaders to use Risk Management to: þ  Resolve difficult operational and business challenges þ  Take & manage risks effectively to build sustainable & profitable growth models Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 Marc’s specific areas of expertise include ERM, risk decision-making processes, corporate governance, Business Ethics, Social Responsibility, risk-aware culture, risk communication and crisis management, business model/Strategy Risk Management, corporate learning systems development. 39
  40. 40. Risk  Management  is  a  con/nuous  journey,  not  a   des/na/on!   Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 Marc Ronez is on Linked in & WordPress You can find his profile & read his blogs at: P: sg.linkedin.com/pub/marc-ronez/1/3b6/465/ B: theriskmanagementparadox.com B: riskmanagementdemystified.com 40
  41. 41.  ARiMI  –  Asia  Risk  Management  InsBtute   Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 41
  42. 42. ARiMI  is  an  applied  research  and  business  studies  ins0tute  that   was  set  up  in  2003  (in  partnership  with  NUS  ext)  and  has   established  itself  as  the  Ins0tute  of  Reference  for  Enterprise  Risk   Management  studies  in  Singapore  and  in  the  region.       We  FOCUS  on  programs:     1.  For  Decision-­‐Makers  (Middle  to  Top  Management):   Developing  PRACTICAL  Knowledge  &  Skills  in  Risk  &  Crisis   Management   2.  For  OrganizaBons:  Building  CAPABILITIES  for  Sustainable   and  Profitable  Growth  by  EMBEDDING  Risk  Aware  &  Crisis   Readiness  Culture   ARiMI,  Asia  Risk  Management  InsBtute     Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 42
  43. 43.      ARiMI  -­‐  Focus  and  ExperBse   ● Crisis management & Business Continuity ● Leadership risk decision- making and Social Capital ● Reputational Risk & stakeholders management ● Corporate governance & business ethics ● Business Innovation & Corporate Transformation Research ● Professional Designation Programs CERM (Certified Enterprise Risk Manager), CPRM (Certified Professional Risk Manager), ARM (Associate in Risk Management), FSRM (Fellow in Strategic Risk Management) ● Public Seminars and Workshops ● Corporate Training & learning Programs Education ● Risks & Opportunities Assessment & Mapping ● Crisis & Business Continuity Mgt ● Reputation Risk Mgt & CSR ● Business Ethics & Fraud Risk Mgt ● Risk Appetite & Risk Aware Culture Readiness ● Project risk management ● ERM Implementation Innovation & Change Mgt Expertise Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 43
  44. 44. 44 For more information on ARiMI, check our website at: www.arimi.org Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014 Developing Effective Leaders & Decision- makers for complex & volatile times
  45. 45. Important Note: Please note that that this presentation and its contents, is the intellectual property of the Asia Risk Management Institute Pte Ltd. It has been prepared for this MayBank Guru Series 2014 session and it cannot be disclosed, used for any other purposes without the specific written consent of the Asia Risk Management Institute. Whilst any third party information contained in this document has been obtained from sources believed to be reliable, no representations are made as to its accuracy or completeness. Further, ARiMI expressly disclaims any responsibility for liability or loss arising from use of such information or from any of ARiMI's comments upon it. 45Marc Ronez -Emerging Risk Management - Copyright @ ARiMI 2014

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