At Gen10, we believe that commodity management technology should help organisations manage operational risk to a far greater extent than many CTRM systems currently allow. We have been promoting the advantages of proactive operational risk through digital transformation for several years and so are delighted that 2019 was the year that operational risk was placed firmly on the industry agenda.
Operational risk on the agenda
Back in May 2019, the Gen10 team attended ComRisk, a forum for risk managers to share, scrutinise and connect. Operational risk was far more prominent at this event than at even other recent ComRisk forums, and featured as a key part of several presentations. Discussions particularly highlighted the fact that poor data introduces operational risk, whether from a trade surveillance, supply chain management, compliance or a corporate social responsibility perspective.
And other conferences discussed different aspects of operational risk management, from Sibos exploring cyber security to LME Week’s panel discussion of Environmental, Social and Governance issues’ impact on the metals industry.
What will operational risk look like in the 2020s?
“An overarching feature of the current risk environment is its sheer unpredictability”
An overarching feature of the current risk environment is its sheer unpredictability, and this doesn’t look likely to change in the near future. The pace of technological advancement may grant the ability to manage risk with greater control, but it also provides the means for new risk factors to rapidly evolve.
Some of the new risk factors we can expect in 2020 are known, such as IMO2020, the global sulphur limit on bunker fuels. Not only could this impact on the cost of fuel, shipping and insurance, it means increased credit risk in the marine industry and a new compliance regime for traders and counterparties from 1st January 2020.
We can also anticipate some of the geopolitical risks we are likely to see in the short term, although their impact is less certain, and some may not occur at all. From protests in areas as diverse as Hong Kong and Latin America to disruption in American politics, US-China & US-EU trade tariffs and a new Brexit impetus in the UK, early 2020 could become a turbulent period. The sheer unpredictability of future geopolitical risks is a risk factor in its own right.
Counterparty risk is another aspect of operational risk that looks set to present a significant challenge in the coming decade. Presentations at ComRisk highlighted that it’s no longer acceptable to only carry out Know Your Counterparty (KYC) checks during onboarding and that due diligence extends across the value chain. If a counterparty partners with non-compliant or sanctioned organisations, it is still your organisation that is at risk.
Sustainability and traceability across the value chain are related areas of counterparty and operational risk that are likely to grow in importance in the coming decade, particularly following the year of climate activism that 2019 has become. As well as meaning more certificate management, this could put increased pressure on audit functions and even logistics, as transportation CO2 emissions are beginning to be regulated, particularly in energy commodities.
What ties operational risk management together is data management and data security. Companies operating at any stage of a supply chain will need to have a clear understanding of their counterparty risk throughout their partnerships, not just as part of an initial KYC audit. They also need to understand their own data better to manage the staples of operational risk; credit, market and exposures, employee conduct, processes and controls. Strong data management can also mitigate one of the most fast-moving risks; cyber security, by limiting the risk and impact of an event.
Connected supply chains need better data visibility
How does commodity management technology change operational risk management?
Commodity management technology can provide businesses with greater agility and flexibility in managing risk than a traditional CTRM system. Gen10’s commodity management apps are designed with operational risk in mind. From counterparty and certificate management (with automated reminders of renewal and expiry dates), to automated workflows that mean contracts can’t be progressed without meeting your custom risk controls, commodity management technology puts operational risk at the heart of your activities – without adding to busy traders’ or operators’ workloads.
The automated workflows mean that once data is input into the system it is also used elsewhere (without the need to constantly re-enter it), such as in system-generated contracts or shipping documents. This reduces the risk of typing errors and omissions, reduces manual workloads and allows risk managers to access data in real-time as the situation changes. Because these commodity management apps create the data used for compliance and risk management as employees carry out their roles, they are not subject to the delays and reporting errors that can arise from copying information into reporting systems.
And Gen10’s app-based infrastructure means that businesses can take an agile approach to their risk management technology, improving the accuracy and flow of data across broader business functions than within a traditional CTRM. For example, apps can allow you to conduct supplier audits faster and automatically update the results in your contract management system, or create your own digital marketplace that manages pre-trade activity and integrates with your contract management system once a price is agreed, for better oversight and faster operations.
You can even implement a contract management system to create pre-approved templates, manage credit checks and progress contracts for approval, with reminders and digital signatures, to ensure every contract is created within your risk policies, again whilst reducing manual typing and workloads. Gen10’s Contract.Manager app can even integrate with your existing CTRM for a seamless data flow across each trade’s progress.
Commodity management apps provide greater value than simply the tactical improvements in oversight and data management. They allow organisations to embed risk management in the heart of their operations, in a way that supports other teams and reduces their workloads. The technology allows the risk function to become strategic partners of the business, creating a proactive approach to risk that is ready to adapt to new challenges and creates a competitive advantage for the business. Embedding operational risk management through commodity management technology helps organisations prepare for the risks of the future – whatever they may be.
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