The banking industry's use of new technology, such as artificial intelligence, machine learning, virtual reality, cloud computing and distributed ledger technology, carries data risks, warns UK Finance and Parker Fitzgerald
Modernising banking through technology is adding new data risks within the financial services industry, says a new report.
Just days ahead of the introduction of General Data Privacy Regulation (GDPR), a new joint study by trade association UK Finance and management consultancy Parker Fitzgerald warns about the importance of safeguarding data.
Titled Sustainable Financial Services in the Digital Age , the report says the growth of new technologies such as artificial intelligence, machine learning, virtual reality, cloud computing and distributed ledger technology will save financial services on operational costs – but it does also have its risks.
UK Finance director of technology and digital Dan Crisp said: “Given today’s ever-increasing threat of cyber-attacks and data protection violations, it’s vital that the financial services sector prioritises operational resilience – just having a firewall simply doesn’t cut it.
“The speed and scale of digital transformation makes it essential for new technologies to be integrated safely within existing operating models while minimising risk.”
The report also warns that if the risks are not addressed, it can lead to operational and systematic threats across the industry.
Mr Crisp added: “This isn’t a zero-sum game – these risks are not isolated to specific organisations and financial services firms can harness innovation while simultaneously tackling these new challenges, through the analysis of operating models and building new risk frameworks.
“The industry is working hard to develop technology and water-tight risk programmes, but only collaboration with policymakers and regulators, both domestic and cross-border, will facilitate success.”
How data risks can be addressed
The report suggests that the industry should work together with technology suppliers to create a risk framework that highlights the benefits of digital transformation with the recommendations:
- Placing the safeguarding of data at the centre of sustainable digital finance
- Closing the gap between incumbents’ digital aspirations and the reality of legacy IT estates
- Reviewing the integrity of fintech ‘component solutions’ being integrated into the supply chain.
Matthew Hayday, leading partner in global technology services at Parker Fitzgerald, said: “Digital transformation is both inevitable and necessary for the financial industry. A forward-looking agenda should highlight its impact on the industry’s risk landscape.
“To safeguard their organisations through the digital transformation journey, financial firms need to close the gap between their digital aspirations and the reality of their legacy IT estates.
“Key activities include reducing reliance on legacy systems, de-cluttering redundant systems, and using analytics to predict and quantify the impact of non-financial risks.
“Of particular importance to financial firms is understanding how future regulations can affect their digital transformation strategies.
“How key technologies can be safely adopted within their operating models, and how their risk frameworks can be adapted to take account of new risks and threat vectors arising from cyber and technology risk, as well as data privacy and protection considerations amplified by PSD2 (Revised Payment Service Directive) and GDPR.”
GDPR comes into effect on Friday 25 May and could lead to companies being fined if they have not put in place the necessary procedures to protect data.