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Risk management, compliance, and sustainability are becoming increasingly important topics in the financial sector, which must be able to satisfy ever-tighter regulations and respond to growing sustainability expectations. Our programs give you a deeper understanding of these topics and the tools to maintain and improve your expertise. 

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Finance – Risk Management

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Finance Risk Management

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Finance

Financial management’s ability to provide essential information in support of decision-making is a key factor in for the success of an organization. The main task of the entire financial management function has become a strategic partner for the management, rather than merely supporting everyday activities. Comparably it is essential for the business executives to be able to interpret and apply financial information in leading the business and operations.

Aalto EE provides financial management training for all organizational levels and a wide range of needs. We help both organizations and individual experts to develop their financial and financing expertise; we also enhance the capabilities of financial managers to lead and develop financial organizations. For business executives we provide tools for gaining a deep understanding of the financial perspective, to support of decision-making.

 

Competitiveness from financial and financing expertise

We provide variety of trainingsolutions for financial executives and other financial management experts, such as business controllers and analyst and other key employees working at different levels of an organization. Our training helps participants to modernize their organization's financial operations to meet future requirements, and to develop their own skills with a view to adopting a more strategic role as influential business partners for executive management.

Bringing certainty to decision-making

To make well-founded and successful decisions on issues such as investments or pricing, executives need to be familiar with basic financial principles and key applications. Basic economic literacy and understanding of key economic figures also play a decisive role in strategic planning, as well as when weighing up alternatives for the future direction of, and defining success factors for, a business.

Activities should be trimmed and go deeper

As global competition intensifies, companies regard continuous operational streamlining as vital to their competitiveness. Financial management is also expected to engage in the continuous streamlining of functions. In many organizations, basic financial management has been outsourced and global service centers are proliferating in low labor-cost countries.

While streamlining their operations, financial functions are also being expected to make a deeper and more strategic contribution to supporting and developing business activities.

Financial management is digitalizing and automating

Digitalization has rapidly transformed business activities. It has created new types of service and business models as well as new, unprecedentedly effective methods and tools for value creation.

Digitalization has also transformed financial management functions and markedly reformed practices. The pace of change continues to increase. The proliferation of automation and software robotics has accelerated data management and greatly reduced the number of human errors. Digitalization is enhancing basic financial management functions and improving accuracy and quality. Work that is independent of time and place has made work processes more flexible.

Automation of the routine tasks will free up resources for the analysis and integration of data."

With some justification, the digitalization of financial management and automation of many basic tasks are a cause of concern among financial managers. They also offer financial management experts the opportunity to use their expertise to solve complex problems, thereby generating more value for businesses. Wherever the automation of financial management reduces the human input needed in routine tasks, it will free up resources for the analysis and integration of data, while enabling a genuine focus on supporting business operations and evaluating new commercial opportunities.

However, the pressure is also mounting to develop the skills and competencies needed to succeed in this new role. Automation is leading to major changes in the job descriptions and skills required of financial managers and professionals. A new way of thinking and openness to adopting new types of work and changing practices are needed. Both organizations and individuals are responsible for developing processes and know-how to meet the growing expectations directed towards an organization's financial management.

New competence requirements for financial management

As the role of financial management changes, job descriptions and skills requirements are being transformed. A key skill is the ability to understand the relationship between financial performance and the performance of various business functions. In turn, this requires closer cooperation between financial management and other business units, in which the financial management expert primarily supports decision-making and operational management. No longer a mere producer of reports and data masses for decision-makers, the financial function is an active user and interpreter of information. The focus is shifting towards the perception and analysis of future opportunities instead of reporting historical data.

The focus is shifting towards the perception and analysis of future opportunities instead of reporting historical data."

A growing number of international rules and regulations are arising with respect to financial management and financing. Financial experts must be able to upgrade their skills and knowledge of topical issues concerning matters such as taxation, transfer pricing and international accounting standards.

While the perception and management of financial risks involve the mastery of regulations and international legislation, other business risks and their management are receiving greater emphasis in the everyday work of financial and financing experts. To prevent unpleasant surprises, in addition to identifying business opportunities financial management needs to spot potential risks and uncertainties that may disrupt business activities. This requires skill upgrades, the active following of trends and the monitoring of international economic cycles and political developments.

Deeper insight is needed into the hidden causes and effects behind financial figures, as well as the formation of phenomena such as customer value."

As the role of the financial function becomes more strategic, financial management and experts will need deeper business know-how and a broader vision of commercial success factors. Numerical skills are no longer sufficient - deeper insight is needed into the hidden causes and effects behind financial figures, as well as the formation of phenomena such as customer value.   

As the role of financial experts changes, cooperation, interaction and communications skills, and tools for shaping opinions, are growing in importance. Financial experts need to collaborate with other departments and colleagues in gathering and analyzing the relevant data from multiple sources. The ability to distinguish essential information from the data mass, summarize it and present it intuitively and persuasively to management and colleagues is taking center stage.

The financial function is an internal service provider with the task of promoting and supporting the success of an enterprise. In addition, outstanding service-mindedness will be increasingly required from the financial professionals of the future.

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Key role of risk management in the financial sector  

Aalto EE helps financial sector operators to boost their risk management and compliance competence. Excelling in these areas is becoming increasingly important as the operating environment grows more and more uncertain and volatile and as regulation mounts.

One of the biggest drivers of change in the financial sector is increasing regulation and ever-stricter controls. The most recent financial crisis laid bare the weaknesses and challenges of the current regulatory environment and forced the sector to step up controls. The purpose of regulation is to promote micro-prudential and macro-prudential market mechanisms and prevent new crises. The financial sector is indirectly responsible for the stability of many other industries as well as entire national economies. Regulation is also designed to stop criminal activity.

The most notable recent regulatory developments in the financial sector include the Markets in Financial Instruments Directive (MiFID II), the Insurance Distribution Directive (IDD), the revised Payment Services Directive (PSD2) and the General Data Protection Regulation (GDPR). Laws relating to anti-money laundering and counter-terrorist financing (AML/CTF), know-your-customer (KYC) procedures and sanctions have also been updated.  

Furthermore, the latest regulations in the financial sector introduce new prudential and liquidity requirements, which are designed to ensure the solvency of banks and thereby the stability of financial markets on the whole. One of the most crucial new regulatory frameworks is Basel III, which is currently being phased in across EU countries.  

More and more of the new regulations are international or cover at least the whole of the EU. The goal is to harmonize the procedures, regulations, and enforcement systems of different countries in an increasingly globalized world. Improving consumer protection is also at the heart of many of the new regulatory mechanisms. A good example of this is the effort to improve and promote investor protection through MiFID II. When implemented efficiently, regulation stands to unify the industry, enable healthier competition, make it easier for customers to compare products and services, and thus boost the performance of the entire sector. The regulation also aims to promote stability and public confidence in financial markets. 

Regulation Calls for Adaptation and Learning 

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 and the “Three Lines of Defense” 

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.  

Foresight at the Heart of Risk management 

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 skills 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.