please tead case study and answer question 1

Susannah Hammond; Senior Regulatery Intelligence Expert 8 Feb 2022 A new report shines a light on five key risks that financial sorvices firms should be concerned about in 2022 By and large financial services firms weathered the initial chaos of the pandermic reasonably well with a combination of flexibility, deployment of technology, and, in the case of barks, balance sheets which had been substantially bolstered in the wake of the financial crisis. The chalienge for financial services firms now is the consideration of what they wish to keep from the changes they made due to the pandemic. The pandemic is not the only driver of change and challenges, of course. Shiting geopolitics, the emergence of climate risk as a key issue for financial services firms, the speed of innovation in cryptos, and the need to deliver consistently good customer outcomes are all key board room considerations. The risks that financial services firms run are insthution-specific, but there are some high-level risks applicable to all firms, irrespective of geography or sector. Here are five key tisks for firms in 2022 : 1. Data govemance The need for a robust approach to data govemance is incressingly critical. As a first step, firms need to embrace the fact that data is a key strategic asset and from there, build a business-wide approach to data aggregation, management, storage, security, retrieval, and destruction. In other words, build a business-specific approach to data governance. Successful data govemance will have multiple benefits, including increased line of sight to risks being run in a hybrid working environment, the ability to comply with the recenty agroed-upon climate risk reporting requirements, and enhanced record-keeping. 2. Operational resilience The pandemic is nothing if not a test of the operafional resilience of financial services firms. At a minimum, firms need to consider operational risk management - such that the management of operational risk should identify external and internal threats and potential falures in poople. processes, and systems on a continuing basis. Firms also need to prompty assess the vulnerabilities of critical operations and manage the resulting risks in accordance with the operational resilience approach. ESG stands for envitormertax social and corporate govemance snd covers a wise sweep of evolving risks and required actions for firms going forward as part of the giobel asproech to dirnte corperate govemance, financial service fims (among oftwer) will simply not be acte to defiver on the chalenges. A. kiey deliveratle is the suatsinability-reisted diciosure stantards which were ayeed upon, at least in draft, at COP26. For firms meeting the proposed reporting requitemertas. the process will imolve the collection, coilation, and reproductile reporing of mitions of dats points. And hat is before jurisdictions ovelay their ewn specilc requirenerts. There is a clobal ahortage of ESO skils and experience. and Sms whould not underestimate the complexty of the govenence aspect of this chalenge, which they wit reeded to meet in order to develop criteria and expectstions. 4. Pemuneration In a measure of hew crucial compensation, remunetation, and good bonus detign is jeroened, hese issues were the very first thing the Financial Sakbity Bourd (F5S) addresed in bet waie of the financial crisis, implemerting supranalional compermation stantaris that sought to ative betber rak-aware behavions. That was September 2009 , of cousse, and now, the FSB is continuing to review the global implementsion and practical impsct. The FS8 s severth progeds neport covers the practices of the largest financial instedians in the bariane, insuranct, and asset managertent sectors and highlights uneven progess towards implemerting the principles ard stanesis. with banks seen to be relatively more advanced than irsutance and astet mansgothent frimi. For more on this subject, you can see author Susarnat Hammond interiew here. Firms would be well advised to benchmark their appraach to campensalion with the tacest FS8 progress report. There is muth granular detall on emeiging good and better practices, logether with an insight into how firms are navigating certain legal chalienges, and the use of compensation bo promote a sound culture and positive behaviors. 5. Enabling technoiogies It is esamated that the pandemic acceierated digital transionicion by as much as thee years. Digtal transtormation is made possibin by enabling technoiogies which nelude application programming interiaces, big data analytics and artifcial inteligence. biometrics, cloud computing (specifically outsourning to the doud, and distributed iedger (tiockihain) technology. Finns and their boards need to be atile to enwure the safe and sound adoption of any new technciogies ao that the benetts can be reaped and the risks aning trom the adogten of movasive activies are proactively and approgriately managed. The critical element is again governance. Wathout appropriately rebust corporate govemance. francial services firms could frid that not only do they fail to reap the polental benefts but that regulatory issues are created that impact both the firm and terior andvidaks. Gone are the days when the It function, capabie or nex, was trating with driving technelogical change. it is now a pre-equatibe for board members and senior managers to have sumicent sechnoiogical knowledge (or ready access in that knowiedge) to be abie to chalenge and cversat a QUESTION ONE [24] 1.1. Other than the risks identified in the case study, explain the financial risks that an organisation may face (11) 1.2. Differentiate between financial risk and core business risk (6) 1.3. List the key root factors that result in financial risk (7)