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Risk predictions for 2020: What you should look out for this year

Nevan McBride, Risk Practice Director

The author

Nevan McBride

Risk Practice Director

This year, the focus is on growth and development which will inform risk strategies for the next decade.

The market place has changed substantially in recent years giving rise to opportunity. The new data strategy paper published by the FCA and Bank of England flags analytics as fundamental to understanding the market and efficiently predicting, monitoring and responding to firm and market issues.

The key to this is investing in technology such as cloud based tech to increase the use of external data and to focus on having the right skills and resource (data scientists and dedicated teams) to better understand how analytics and technology should be utilised.

It's clear how this will become pivotal this year alone.

Brexit

The UK’s transition from the EU is underway as the country prepares for a post-Brexit future. While businesses may be hoping to avoid any cliff-edge effects in the economy, the government’s negotiating position, its red lines and an exacting negotiation timetable mean that it is unlikely that the economy can escape without any impact.

As trade negotiations get underway, the plausibility of favourable trading agreements may become clearer, and the expected economic effects will begin to filter through to lenders’ forecasts and stress tests.

As the end state comes into focus, we expect to see reviews of risk appetite by the end of 2020 as lenders prepare for these impacts – but it may be several years before we see the full picture.

Competitors already embracing new tech

Meanwhile banks will continue to transition to stay ahead of the competition. The adoption of new technologies remains high on lenders’ agendas, including the movement towards AI-based approaches (as discussed in our first risk prediction) supported by clear guidance from regulators such as the ICO and FCA, particularly on the use of AI in predictive modelling.

Utilising new datasets

Will 2020 be the year when Open Banking gets wider traction?

It’s clear that some lenders are set-up to utilise this data, although many organisations are still to take their first steps towards employing it within lending decisions, and consumers are not yet bought in to its benefits.

New regulations

Another of our articles touched on model risk being an area of key focus, particularly as regulatory models are altered and strengthened to meet new regulatory demands (such as IRB) with impending deadlines towards the end of 2020. A new area of focus from the regulators is Climate Change Risk which introduces fresh and novel challenges to banks.

Later in the year, the largest banks must rise to this challenge by producing Climate Change stress tests as part of the Bank of England’s Biennial Exploratory Scenario.

 

So 2020 is a year of immense change for the sector, with multiple drivers of change forcing lenders to adapt.

For more information on how Jaywing can help you respond to these changes and emerge intact from the transition, get in touch.