The new regulations, obligations, and requirements are forcing the financial sector to adapt and learn new ways of working. Deploying and implementing new regulatory frameworks is not always easy or straightforward. The overabundance of regulation is a hot topic in the industry, and some believe that the extra costs associated with the ever-increasing degree of regulation are starting to outweigh the benefits. The challenge in implementing new regulations often lies in the interconnectedness and overlapping nature of EU-level and national laws.

Growing regulation is also challenging industries beyond the financial sector. Currently, more and more of the laws governing the financial sector also cover organizations that do not satisfy the traditional definition of financial operators. Businesses in all kinds of industries are finding themselves having to understand the relevant laws. Organizations in industries other than the financial sector generally have much more limited resources and competence in, for example, anti-money laundering and counter-terrorist financing (AML/CTF) enforcement. New entrants to the market soon realize the complexity of the regulatory environment. While the PSD2, for example, is designed to make it easier for third parties to get involved in the industry and thereby to promote innovation, cooperation, and new business, the level of regulation is an insurmountable burden for some innovators.

With the ever-changing regulatory landscape, maintaining and demonstrating competence is becoming increasingly difficult. Aalto EE runs training courses focusing on the latest developments to help organizations and professionals to prepare for upcoming legislative reforms and to understand what new regulations mean in practice and how they will affect their work and business. Aalto EE already has in place a comprehensive set of online courses on topics such as KYC, AML/CTF, GDPR, IDD, and MiFID II, which are helpful for both financial and other operators. The courses are designed to allow organizations to upgrade the competence of their entire staff to a new level in one fell swoop. Our courses for organizations also include “Carry On” modules that are perfect for maintaining competence.

Risk management is vital for securing the continuity of business and the well-being of employees. At the heart of effective risk management are internal processes that ensure that every member of staff plays their part.

The objective is to pinpoint the best ways to efficiently identify, analyze and deal with the risks involved in each business and the pursuit of its goals. “Risk” is any event that can adversely affect the achievement of those goals. Companies’ risk management function and the associated processes need to be able to continuously identify and analyze both internal and external risks, and these processes should ideally be integrated into the way in which the organization as a whole is led. Well-planned and efficient risk management adds value to the entire business.

In the financial sector, risks are typically divided into strategic, operational, financial, and liability risks. Our online course on businesses and risk management covers the fundamentals of risk management: its purpose, key concepts, and the nature of different kinds of risks. Risk management is also discussed in our other courses.

At the core of risk management is a concept known as the “three lines of defense”, which refers to the three organizational levels that are ultimately responsible for risk management. The first line of defense comprises the functions that own and manage risks, i.e., individual business units. They are responsible for understanding the risks inherent in their respective operations and managing those risks effectively. The idea behind the three lines of defense is to create a clear hierarchy of risk assurance responsibilities in order to ensure effective risk management. The model is especially popular in the financial sector. In most cases, the model is overseen by the organization’s executive management team.

The second line of defense is made up of the functions that coordinate enforcement and specialize in compliance and the management of risk. It is vital that these functions are independent of the first line of defense. This line effectively acts as a support system, in addition to which these functions are often the ones that determine the objectives of risk management, formulate the processes and guide the rest of the organization in these matters. The second line of defense needs to be able to support not just individual units but also the entire business on a strategic level. The third line of defense consists of the organization’s internal audit department. Its role is to provide independent assurance and information on the performance of the first and second lines of defense for the organization’s executive management team.

It is important to remember, however, that risk management should not be seen as a purely administrative activity or a box that must be checked, but as an integral part of running a responsible and sustainable business. To achieve comprehensive risk management, the entire risk management policy must be based on the organization’s values and strategy.

Doing this is rarely easy in practice: “Despite the enthusiastic uptake of the three-lines-of-defense model in the financial sector in recent years, failures in internal controls have been to blame for a number of banking scandals that have led to significant financial losses,” writes Jani Tuomainen, Compliance Officer at Danske Bank, in an article published by Aalto EE.

The three lines of defense also need the support of external audit and training to give organizations fresh perspectives on risk management. Seminars and online courses focusing on the latest developments in this respect can give organizations the tools they need to improve their risk management functions and help them to assemble their three lines of defense more effectively to truly support their business. Our courses are also excellent learning opportunities for the staff and managers of the various lines of defense.

One of the most important objectives of risk management is to provide peace of mind. Comprehensive risk management requires an in-depth understanding of the operating environment and the ability to identify and prepare for even the most unexpected events. In the increasingly fast-paced operating environment of the financial sector, the skill set required of the modern risk management professional includes not just an understanding of business and the relevant laws but also an ability to anticipate changes. Successful risk management creates a sense of security and helps to maintain continuity in rapidly evolving situations. This is why responsive and proactive risk management is so important. Instead of seeing risk management as an expense, organizations need to start thinking about it as an enabler. And when risks materialize, there is no end to the importance of communication.