Introduction

As we propel further into the digital age, the financial services and fintech industries are evolving staggeringly. Technology-driven financial innovations are simultaneously creating unprecedented opportunities and novel risks. Financial services providers (FSPs) and fintech organisations are at the frontline of this rapidly changing landscape. These changes require industry leaders to strike a delicate balance between embracing innovation and managing associated risks effectively. This blog highlights the importance of robust risk monitoring practices in navigating the digital financial transformation, referencing recent notable risk events and showcasing how solutions like EMTECH’s Risk Monitoring Solution can help firms prepare for the unexpected.

Meteoric Rise and Crash of UST and LUNA

The cryptocurrency market offers striking examples of the risks and rewards inherent in today’s digital financial world. Take, for instance, the meteoric rise and subsequent crash of UST and LUNA. Within a short span, the UST stablecoin and its governance token LUNA went from relative obscurity to becoming among the top-ranked cryptocurrencies, only to experience a dramatic crash. This rise and fall expose the volatility inherent in the cryptocurrency market, driven by rapid technology adoption, speculative trading, and regulatory uncertainties.

The Collapse of FTX

Further illustrating the risks in the digital financial landscape is the unexpected collapse of the popular cryptocurrency exchange, FTX. Once a paragon of the new generation of cryptocurrency platforms, FTX’s downfall underscores the need for robust risk monitoring systems to identify and respond to real-time risks. The FTX collapse brings to the fore not only operational risks associated with running a digital platform but also liquidity and market risks that can swiftly translate into systemic risks for the broader financial ecosystem.

The Fall of Wirecard

In the realm of web-2, Wirecard, a high-profile technology-enabled financial services provider, serves as a stark reminder of what can go wrong when risk monitoring and management practices are insufficient. A massive accounting scandal precipitated Wirecard’s dramatic downfall. Despite its cutting-edge technology and impressive growth, the company’s poor internal controls and lack of robust risk management practices ultimately led to its demise. This case underscores the crucial role of robust risk monitoring systems that go beyond financial metrics to cover operational, compliance, and governance risks.

The Silicon Valley Bank’s Abrupt Collapse

It is not just the emerging fintech and cryptocurrency sectors that are prone to abrupt crises. Traditional financial institutions, like the Silicon Valley Bank (SVB), are not immune to sudden failure. SVB’s abrupt collapse resulted from an unusual confluence of poor investment strategy, risk management practices, board risk oversight, and an over-concentration in a volatile sector. Despite existing in a heavily regulated environment and boasting comprehensive risk management structures, SVB’s downfall underscores the complexity of managing risks in today’s fast-paced and interconnected financial world.

The Need for Robust Risk Monitoring

The examples of UST and LUNA, FTX, Wirecard, and SVB underscore the critical need for robust risk monitoring systems to keep pace with the rapidly evolving digital financial landscape. In today’s digital age, monitoring risks in silos or relying on outdated tools and frameworks is no longer adequate. Effective risk monitoring should track traditional credit, market, and liquidity risks. However, the new financial ecosystem demands an evolved approach.

With the advent of technologies like AI, blockchain and machine learning, risks are becoming increasingly complex and intertwined. These new technologies bring about risks like cybersecurity threats, privacy concerns, and data integrity issues, which were essentially non-existent in the traditional financial paradigm. FSPs must monitor these digital and conventional risks to ensure overall financial stability.

Domestic and international regulatory changes add another layer of complexity to risk monitoring. As regulators across the globe grapple with the challenges posed by digital finance, regulatory norms are continually evolving. FSPs must stay abreast of these changes and incorporate them into their risk-monitoring practices.

The interconnectedness of the global financial ecosystem also magnifies risks. Events in one part of the world or within one industry sector can quickly ripple through the entire system, creating cascading effects that can lead to significant financial losses. Therefore, FSPs must monitor risks within their operations and across the financial ecosystem.

In light of these considerations, FSPs need a comprehensive, integrated risk monitoring solution that can keep up with the speed and complexity of the modern financial world. Such a solution would leverage advanced analytics to monitor a broad spectrum of real-time risk indicators, providing FSPs with the insights they need to make informed, proactive decisions. This will be the key to surviving and thriving in the new digital financial ecosystem.

EMTECH’s Risk Monitoring Solution– A Game Changer

EMTECH has developed a comprehensive Risk Monitoring solution designed explicitly for FSPs in response to these developments. This solution monitors a broad spectrum of risks. It provides real-time alerts, ensuring FSPs can respond swiftly to emerging threats. The EMTECH’s Risk Monitoring solution is a cloud-native SaaS platform built on an API-led approach. This structure allows it to integrate seamlessly with various existing systems, providing flexible and scalable risk monitoring across different parts of an organisation and various risk domains. It brings the power of the cloud to risk monitoring, enabling real-time analysis of large volumes of data from diverse sources.

The solution features intuitive risk dashboards that present a broad set of risk metrics tailored to the monitoring needs of various users within an organisation, depending on their role. This ensures that relevant information is readily available to those who need it most, from the C-suite to risk management and compliance professionals. The solution also facilitates comprehensive risk reporting to internal and external stakeholders, enabling transparent communication and effective oversight. Importantly, the platform supports various financial services, both web-2 and web-3 related, thus ensuring it is well-equipped to handle the needs of a wide range of FSPs.

EMTECH’s Risk Monitoring leverages advanced data analytics to monitor various risk indicators across traditional and digital financial markets. It’s designed to bridge the gap between risk management practices of the past and the future’s requirements, enabling FSPs to thrive in the new digital financial ecosystem.

Beyond identifying and alerting users to potential risks, EMTECH’s solution also provides tools for stress testing and scenario analysis, allowing FSPs to understand their vulnerabilities better and plan accordingly. It offers a clear, data-driven view of an organisation’s risk landscape, providing valuable insights for decision-making at all levels – from the C-suite to risk management and compliance professionals.

Conclusion

In an era where emerging technologies continue to reshape the financial landscape, FSPs must evolve their risk monitoring strategies to stay ahead. EMTECH’s Risk Monitoring solution represents a significant step forward.

To explore how EMTECH’s Risk Monitoring for FSPs can help your organisation navigate the new era of digital finance, book a meeting with us today.