How news data can be a valuable source of information for risk monitoring and management

 

An important trend in risk management in recent years is that risk teams are increasingly using news data from the Internet with news APIs to identify risks and pursue approaches that allow risk managers to use that data effectively.

Why News data’s importance is increasing in risk management?

Many risks inherent in the business models of financial institutions are those that are driven by the outside world and exist in the transaction environment of customers, suppliers, and partners or in the context of regulatory authorities, politics, or change.

Therefore, closely monitoring the messages for signs of risk and sentiment should be an integral part of any financial institution’s risk management framework.

Aside from those use cases where the only source of risk signals is outside the company, the news can also help with the risks you have.

Some Internal Data, Effective operations and compliance processes are often hampered by challenges that can be addressed by considering the outside world and emerging events.

These challenges include:

1. Poor access to relevant data

2. Reliance on qualitative hunches

3. Siloed focus when it comes to risk management

External message data can be used to add contextualized information to internal evaluations. As long as it’s carefully organized and curated, news data can be an excellent source of objective data about customers, suppliers, regulatory actions, and other types of risk.

It can be used to provide a more robust set of ratings that can be used to challenge qualitative ratings from in-house experts. Spot and similarly structured news data can show areas in which risk limits are exceeded and risks collide.

This is very useful in trying to counteract the risk silos that can exist in financial firms and highlights areas where these internal silos need to work together and share data.

News data for Risk identification

Horizon scanning

This is the area where news has traditionally been used in risk management by scanning the environment for new risks due to changes in technology, the environment, and the political landscape.

Brexit is a great example of a risk that didn’t exist 10 years ago and yet caused huge changes and costs in the financial landscape for companies around the world.

The ability to conduct online surveys in a structured way to identify new risks that may affect your business in the future is now seen as an essential part of any good risk management framework.

Rapidly increasing risk

Our recent experience with the pandemic is an example of how a known risk (through the SARS experience) has rapidly evolved to have a much greater likelihood and impact than expected.

This event has also shown executives that there is little likelihood of these risks actually occurring and to a much greater extent than expected, the annual or semi-annual review that was best practice a few years ago.

Scenario generation

Scenarios are the foundation of most good risk management frameworks today. They are used in assessing operational risk capital and, increasingly, in approaches to operational resilience.

External messages are used to generate these “stories” of scenarios, which are then presented to the company to understand how they would manifest if they occurred here.

Again, due to the pandemic, executives and boards of directors are asking risk teams to provide their list of scenarios to ensure that risks are less likely to be covered.

News data for Risk monitoring

Outsourcing risk

This is a hot topic right now with many regulators and regulators. Organizations develop internal monitoring programs to understand the status of their outsourced partners and ensure that they are in excellent oversight.

Reviews to see if anyone else is having other issues that they may not be aware of. Therefore, these companies receive an internal monitoring score and compare it with an external monitoring score for each third-party provider.

Scenario estimation

As mentioned above, scenario generation often uses external messages and we also see messages that are used for scenario estimation, especially probability estimation. or at least question internal assessments that may be overly optimistic or pessimistic.

Cyber risk

Given the rapidly changing nature of cyber risk, it is important that risk teams use outside news sources to monitor the Internet for new and changing risks of this nature.

This is also where the too much data problem is most evident., the ability to organize and curate the news in this area to ensure it is relevant and proportionate to your business.

Regulatory risk

Regulators around the world these days are very busy creating new policies and rules and also communicating the latest fines and enforcement actions.

Compliance teams need to be aware of what their own regulators say and what other regulators say that they could influence others. and organizing that data for efficient follow-up is now critical to these compliance officers.

News challenges that can be overcome by relying on AI

Too much information — filtering, event detection, and precise search

There’s a problem: the scale of global news in the 21st century is overwhelming, and manual monitoring processes in traditional media are inefficient, imprecise and ineffective today.

This means that risk signals are completely overlooked or discovered too late. implements innovative technologies such as the News Intelligence Platform, which will greatly improve the process by providing NLP and ML capabilities to aggregate and understand global news in real-time so that risk signals don’t go unnoticed.

The system is a tremendous advantage for financial institutions. Instead of analysts receiving and processing global news on a daily basis, a news platform automatically records hundreds of thousands of news articles from around the world as they are published.

From an article in real-time to turn unstructured data into structured, stored, and actionable data. Ability to flexibly, quickly, and accurately search for specific categories of news as well as entities such as people, places, products, companies, and even concepts.

Many articles on the same topic — redundancy and clustering

A big problem with the news is that you often get multiple articles on the same story. This is both a benefit and a curse.

The upside is that you can group these articles together and use them as signs of the meaning of the story as it obviously creates a lot of interest. On the curse side, it means you can read tons of articles that actually say the same thing.

The latest news platforms can duplicate these articles and also summarize the most important ones, thus targeting the reader’s time. and make sure the key facts are easily available.

Maintaining an audit trail — a centralized repository

As with anything to do with risk management, we need to keep an audit trail of our actions, which is very difficult to create after a morning scour internet search tools for news about a supplier or company.

Checking searches and filters together with who has read what. You can also have built-in workflows so that items sent to coworkers or managers can be tracked and reported.

Intelligence Platform and then reports can be generated to demonstrate that guidelines have been followed.