As we head into 2024, the landscape of Governance, Risk, and Compliance (GRC) in the financial sector takes centre stage. RegTech Analyst, in collaboration with ViClarity‘s annual trends report, guides you through the critical themes that will shape the industry in the coming year.
With an amplified emphasis on third-party risks, consumer financial protection, and cybersecurity, financial organisations are gearing up to navigate evolving challenges.
The incorporation of artificial intelligence (AI) into GRC practices adds a dynamic layer, promising advanced risk management solutions.
Moreover, the quest for a centralised platform for comprehensive management of risk, compliance, and reporting data continues to drive industry conversations.
Here are ViClarity’s top four GRC trends to watch in 2024:
1. Regulator focus on third-party risks & consumer financial protection
Regulatory frameworks are tightening, with a pronounced emphasis on bolstering operational resilience, particularly within the financial sector.
FinTechs, as key third-party players, are drawing heightened attention, exemplified by the National Credit Union Administration (NCUA) delving into credit unions’ vendor due diligence processes. In 2024, ViClarity anticipates an escalated focus on scrutinising vendor connections to financial institution systems and evaluating vendor compliance competency.
The individuals overseeing third-party vendor management now play a pivotal role in their organisations, especially considering the evolving regulatory landscape.
Recognising the financial implications of a vendor’s mistake being perceived as the institution’s error, there is a growing emphasis on integrating technology automation to fortify risk management efforts. This approach not only ensures process consistency but also aids in identifying outliers, alerting teams to missed deadlines, and managing assignments efficiently.
The non-compliance of third-party vendors with consumer protection regulations emerges as a significant threat to financial institutions.
Contrary to common perception, vendor due diligence extends beyond a front-end process, encompassing ongoing initiatives that delve into areas such as personally identifiable information (PII) compliance and cybersecurity protections.
Expectations for frequent spot-checks and sampling of vendor processes as a due diligence best practice are on the rise, with regulators anticipated to closely monitor these aspects throughout 2024.
2. Testing plans for continuously changing cybersecurity threats
financial institutions handle sensitive consumer data every day, which is a responsibility integral to maintaining the trust consumers place in banks, credit unions, and similar entities.
Safeguarding this data is not only a critical duty but also subject to rigorous regulation. The gravity of this responsibility is underscored by the potential ramifications of cyber incidents, which not only jeopardise consumer information but also strain a financial institution’s technological infrastructure.
The fallout may include financial losses, reputational damage, and legal consequences.
While many organisations have existing cybersecurity plans and incident response programs, the focus in 2024 is expected to shift towards rigorous testing.
The dynamic nature of cybersecurity threats necessitates a proactive approach to ensure these plans and programs remain effective in the face of evolving challenges.
Financial institutions may increasingly turn to external consultants for assistance in developing cybersecurity incident response policies or reviewing existing plans to ensure alignment with regulatory requirements.
Whether through external partnerships or internal initiatives, financial institutions are advised to remain vigilant in monitoring the ever-evolving landscape of cyber threats and stay abreast of updates from regulatory bodies.
Continuous testing and adaptation to the changing cybersecurity environment will be key to upholding the integrity of consumer data and meeting regulatory expectations.
3. The use of AI in GRC
Generative AI, powered by natural language processing models, has emerged as a versatile tool, capable of producing text, images, and videos.
Its application extends across various industries, with a notable impact in regulatory and compliance spaces. In the RegTech sector, substantial advancements in AI have been witnessed, presenting both opportunities and challenges for organisations.
The integration of AI brings the potential to automate regulatory compliance tasks, contribute to sophisticated risk assessment models, streamline data processing, and simulate regulatory scenarios for training purposes.
Despite these benefits, organisations must address several challenges before implementing AI in their operations.
Responsible and ethical use of technology is paramount, and considerations for data security and privacy are crucial when deploying AI for regulatory purposes. Additionally, ensuring that AI tools or systems can adapt to regulatory changes is essential for maintaining compliance.
Ogie Sheehy, founder and Global CIO of ViClarity, recently commented on this matter, stating, “companies are looking to see how AI can help them be more innovative, and with the use of algorithms it can help with manual tasks and predict outcomes for large volumes of data processing.”
While concerns exist about the use of AI in certain industries, the prevailing trend indicates that businesses are now more open than ever to exploring its capabilities and integrating it into their operations.
As the consequences for non-compliance become more severe and regulatory scrutiny on financial institutions intensifies, organisations are actively seeking comprehensive and centralised approaches to data integrity, compliance, and risk management.
A key aspect of this pursuit involves establishing a “one source” of data – a singular, authoritative repository that serves as a reliable foundation for risk analysis, policy adherence validation, reporting, analysis, and overall compliance.
Presently, organisations grapple with data silos, where disparate information is stored or recorded in varying formats, hindering easy accessibility and comprehensive understanding.
This fragmented data landscape poses challenges for achieving a holistic view and compliance with regulations.
Traditionally, addressing this challenge would have demanded substantial investments in time and resources.
However, contemporary solutions offer a more streamlined and efficient path. Establishing a unified data source holds the promise of reducing costs, enhancing compliance measures, and facilitating informed decision-making for financial institutions, which is why ViClarity feels this will be an integral part of the GRC landscape in 2024.
Those who overlook this imperative may encounter financial penalties, operational risks, and damage to their reputation.
Read the full report from ViClarity here.
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