As we look back on the past year, it’s clear that 2024 brought its fair share of challenges and opportunities in risk. Jaywing Risk’s consultants have been right in the thick of it, tackling everything from AI implementation to regulatory adherence and the growing importance of fraud prevention.
In this post, we’ll cover some of the key lessons consultants have taken from the last year.
Predictive modelling: Smarter decisions for safer lending
Predictive modelling continues to evolve as businesses face increasingly complex lending challenges so it’s no surprise it makes it onto our key learnings.
Nick Sime, Director of Fraud & Credit Risk Modelling, reflects on predictive modelling lessons:
"Modern credit risk relies heavily on predictive modelling, which has come a long way from older methods," says Nick Sime. "As lending gets more complex, companies using advanced AI and machine learning can better understand and manage their risks."
Nick recently shared 14 key lessons from his experience that risk managers can apply to make smarter, safer lending decisions. Here are three standout insights:
- Machine Learning models consistently outperform: "ML models consistently outperform traditional linear models, often providing a 10-15% uplift in Gini, which can translate to a 20% reduction in bad rates at the same cut-off."
- Sample size matters: "Larger samples help ML models identify complex, non-linear patterns, boosting performance. However, even smaller portfolios can see material improvements."
- Explainability constraints are not a barrier: "Ensuring models are explainable doesn’t have to mean sacrificing performance. In fact, explainability can enhance stability over time."
Risk regulation: A year of challenges and change
Last year, new rules and ongoing feedback presented both challenges and opportunities for compliance.
Paul Monaghan, Regulatory Compliance Specialist at Jaywing reflects on 2024:
“Firms continue to receive feedback on their IRB submissions under the enhanced EBA rules," shares Paul Monaghan. "Some firms have received approval whilst others need significant rework.”
"The PRA published its Basel 3 rules relating to IRB in September, and we expect firms to continue to develop compliant solutions, though many are likely well on their way, having anticipated changes through the consultation papers.
"IFRS 9 Economic Response Models have proven challenging, with actual default rates not increasing in line with the expectations implied by higher Bank of England base rates."
The publication of the PRA’s Basel 3 rules in September added to the momentum. Most firms had already anticipated these changes through consultation papers and have made strides in developing compliant solutions. Meanwhile, the challenges around IFRS 9 highlight the need to revisit assumptions and enhance model accuracy to better handle economic uncertainty.
Fraud prevention: The growing scrutiny
Fraud prevention climbed the agenda in 2024, driven by increased regulatory scrutiny and the need for businesses to take a more proactive approach.
Ben Archer, Fraud Prevention lead, says:
"More and more focus is going on fraud prevention as well as financial crime prevention. Clients aren’t able to just ignore fraud as a small percentage in relation to credit losses with the increased scrutiny from the government and regulatory bodies."
The key takeaway for 2025? Firms need to integrate fraud prevention into their broader risk strategies. By recognising fraud as a critical component of their operations, businesses can build trust, meet regulatory expectations, and protect their bottom lines.
AI in credit and fraud risk: The tipping point
No longer a buzzword, the adoption of AI in risk practices drives efficiency, accurate decisions, and more. We’ve seen firms use it to innovate and deliver value faster than ever.
Here’s Nevan McBride, Risk Practice Director, and his take on AI:
“We’re seeing a clear correlation between early AI adoption and competitive advantage. The performance gap between AI-enabled risk modelling and traditional approaches is becoming too significant to ignore.”
This shift highlights the urgency of bridging the gap between ambition and implementation. Firms leading the charge aren’t just adopting AI—they’re integrating it deeply into their risk functions, building governance frameworks, and focusing on explainability to ensure long-term success.
From lessons to leadership in risk
As we reflect on 2024, it’s clear that success in risk comes down to staying ahead of the curve. Whether it’s innovating with AI, navigating regulatory hurdles, or a renewed focus on fraud prevention, these lessons remind us that adapting to change is non-negotiable.
We hope the lessons from the last year will help shape smarter strategies for 2025.
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