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European Risk Management Council Risk Landscape Review - June 2020

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Risk Landscape Review

European Risk Management Council

June 2020

• Managing COVID risk in the office

• UK Risk Sentiment Index: Q2 2020 Update

• APAC Risk Sentiment Index: Q2 2020 Update


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DEAR READER,

I am delighted to present Q2 2020 edition of the Risk Landscape Review.

The unfolding COVID-19 crisis has radically changed the risk landscape of the financial services

worldwide and the agenda of the risk management leaders. One of the top concerns has become

health and safety of employees during the pandemic. In this issue, we included an article “Managing

COVID risk in the office” written by Chris Cardwell, the CEO of Be Shaping the Future in the UK. In

the article, he discusses how to protect employees’ health and ensure social distancing when they

start returning to the office after the lockdown.

We also continue our publications of Risk Sentiment Index (RSI) updates, an expert driven forward-

looking index that reflects expectations of experts about the risk landscape of the financial sector in

the next 12 months. The results of surveys that we recently conducted in the UK and APAC reflect

how COVID-19 crisis affected the risk sentiment of chief risk officers. The gloomy expectations are

reflected in the updated RSI numbers for the UK and APAC that we publish today.

My huge thanks to all contributors.

Enjoy the reading.

Yours sincerely,

Dr Evgueni Ivantsov

Chairman of European Risk Management Council


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Table of Contents

4 Managing COVID risk in the office

– By Chris Cardwell

7 UK Risk Sentiment Index: Q2 2020 Update

11 APAC Risk Sentiment Index: Q2 2020 Update


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Managing COVID Risk in the Office

By Chris Cardwell 1

As the business world emerges from COVID-19 pandemic-induced lockdown, it is confronted by

wide-ranging and potentially existential challenges. Lockdowns have bought precious time, but

without a vaccine, the imperative remains to decrease the number of new infections. One practical

consideration is how to increase confidence in common work areas, underpinning a safe return to

the office. Shared offices are potential transmission hubs that constitute a new operational risk for

senior stakeholders to manage.

Remote working has proved successful for some, impossible for many. Even for Zoom junkies, face

to face interactions will remain the lifeblood of most organisations through the post-C-19 recovery.

The perceived risk in the workplace must satisfy the risk appetite of the company and employee

alike. Be Shaping the Future has developed a 'virtual protection' toolset that allows employees to

feel more secure in the environment where they spend most time working closely fellow colleagues.

The risk challenge: how to build confidence

Socially distance at least 1 metre apart. Avoid public transport. Don't congregate in large groups.

Only visit the office if necessary. Wear face masks. Wash your hands for 20 seconds. Undertake

regular deep cleans. Stay alert (!). The public has faced a relentless bombardment of messages over

the past four months, and with good reason. In consequence, the Covid-19 peak has passed for now

in many countries.

An understandable consequence of the pandemic is greater risk-aversion amongst the population.

Critical for 'flattening the curve,' this aversion poses a challenge for operational risk executives

charged with guiding the organisation back to work in the safest way possible. Decisions will be

finely balanced as the risk of a second wave appears more likely than that of virus elimination. Even

with encouraging noises on vaccines and the medicines as such as dexamethasone, the likelihood is

that Covid-19 threat will continue for quite a while.

In parallel the risks of extending some lockdown measures are growing: in terms of economic

damage, job losses and increasing insolvencies, not to mention mental health impacts. Opening the

economy will need safe workplaces; similar to Covid-19, the office will not disappear any time soon.

For some, home-working is possible and even productive; for others (e.g. factories, construction,

events) the workplace is essential. In almost all cases, complete home-working is not a practical

long-term strategy.

1 Chris Cardwell is the CEO of Be Shaping the Future in the UK. Be is a pan European Management Consultancy and Digital

Solutions firm, focused on the Financial Services sector, operating in 9 European countries with 1,600 consultants. Please contact Chris directly if you have any further queries regarding the solution via email on [email protected]

mailto:[email protected]


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The Solution

A solution is needed for all employers and employees that demonstrates deep commitment to

providing a safe work environment. Italy was hit hard and early from the pandemic, leaving deep

scars on the population. The search began early for solutions to increase individual protection and

reduce the operational risk within the perimeter of the workplace. Be Group has deep data science

and technology know-how and was determined to lead the search for a solution, leveraging devices

in widespread use: smartphones.

A multidisciplinary award-winning team was assembled from business teams, IX/UI designers,

mobile engineers, developers, facility experts, strategy consultants and innovation researchers. The

research and development built on proven technology along with proprietary algorithms from Covid

Community Alert, an international research project with experts from over 35 countries. The result is

the Human Mobility Platform.

Introducing Human Mobility Platform (HMP)

HMP is a functionally-rich platform providing 'virtual' protection, complementing physical personal

protective equipment (PPE) to help enforce social distance guidelines in the workplace. It provides a

means by which users can truly 'be alert'.

At its’ heart, HMP is a flexible breach-tracing and social distancing app (for all types of android and

iOS devices) that verifies real-time interpersonal distances in the workplace. It helps people work

safely, notifying via sound, text or vibrate alert when safety distances are breached more than

guidance allows. Phones sense each other via low-energy Bluetooth connections. If the phones

remain within the (configurable) breach proximity for a set period of time, each phone alerts the

user and the core system. HMP notifies the company of any such instance, enabling track and trace

of exposure to Covid-19.

The platform offers deeper functionality for more complex environments. Fixed beacons, mounted

near high-people traffic areas to improve app accuracy, allowing greater management and control in

canteens or lift lobbies. Integrated wearable badges and bracelets are all available to protect visitors

and workers within the working environment . The platform logs the proximity and volumetric flow

of people so that these areas can be easily identified and allow access to be better controlled. Using

real data, mitigation plans can be developed, implemented and monitored.

At the workplace boundary, HMP integrates with existing physical control systems managing entry

through 'proximity recognition' into controlled areas. Combined with thermo-scanners HMP can lock

turnstile entry for individuals with a raised temperature, sending a discreet alert to reception.

Finally, it allows room booking to help control the flow of individuals into higher risk meeting rooms.

HMP offers four benefits to those seeking to mitigate the operational risks of Covid-19 and beyond:

• Security: Offers a degree of real time virtual personal protection that reduces risk to the

employee and demonstrates the company approach to safeguarding its premises


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• Privacy: Anonymous storage of interactions in accordance with GDPR, deleted after 15 days

(configurable)

• Simplicity: The platform is easy to deploy, install and most importantly simple to use

• Cost: The app can be installed on staff mobile phones, with tiered pricing to suit a range of

environments

Conclusion

Covid-19 has wrought devastation in a few short months. Employers and employees are now

adjusting to a “new normal”, one where the shared workplace poses new operational risks. Tools

such as HMP offer a glimpse of how technology and good practice can mitigate threats posed by a

close working environment. Virtual protective equipment can enhance the effectiveness of social

distancing guidelines and physical PPE and accelerate the safe return to work.

For employers and employees the future is more uncertain than it has been in a generation. Tools

such as HMP help employees to feel more protected where they spend most time working closely

with others and offer businesses a method to mitigate operational risks without abandoning the

office. That can only serve to accelerate the return to normality.


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UK Risk Sentiment Index: Q2 2020 Update

The European Risk Management Council has updated its UK Risk Sentiment Index (RSI). Fresh data

was collected for Q2 2020. Chief Risk Officers and other senior risk executives provided their views

on the future trends of seven types of risk. Using the survey results, the Council aggregated the data

into a forward-looking index that reflects expectations about the risk landscape of the UK financial

services sector in the next 12 months. Numerically, the RSI reflects the adjusted percentage of

respondents who consider that risk will increase in the next 12 months.

Summary

- The aggregated RSI for seven risk types increased from 0.40 in Q1 2020 to 0.48 in Q2 2020

which reflects pessimistic expectations of UK respondents (Figure 1). The index stands at the highest

level in the last 12 months but is lower than it was in March 2019 before the original Brexit deadline.

- Among individual risk types, RSI for credit risk had an unprecedented increase and more

than doubled since the previous quarter. In Q2 2020, the index jumped from 0.40 to 0.93 which is

close to a theoretical maximum of 1.00. It means that almost 90% respondents expect now that

credit risk would substantially increase in the next 12 months. This represents the highest level ever

registered for credit RSI and for any other risk types since a launch of UK RSI in 2018.

- RSI for market and liquidity risks also showed a substantial increase from the previous

quarter and now stands at 0.46 and 0.37 respectively. It reflects expectations of respondents that

markets would move to a prolonged turbulent phase.

- RSI for operational risk also jumped to the highest level in the past 12 months and reached

0.50. The main concerns are health and safety of employees as well as expectations of an increase

of human errors, frauds and financial crimes during the lockdown.

- On contrast, RSI for regulatory risk dropped significantly from 0.52 in Q1 2020 to 0.26 in Q2

2020. Respondents expect that regulators will make necessary adjustments in the regulatory regime

and give financial institutions more breathing space to deal with the impact of COVID crisis.

Figure 1. UK RSI 12-month trend - Q3 2019 – Q2 2020

Q1 2020

Ju

Q4 2019

Q3 2019

Q2 2020

Ju

0.540.58

0.50

0.23

0.53

0.21

0.34

0.42

0.51

0.440.42

0.39

0.53

0.29

0.36

0.420.40

0.34

0.23

0.37

0.65

0.27

0.52

0.40

0.93

0.46

0.37

0.500.56

0.28 0.26

0.48


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In your opinion, how will the following risks for UK financial industry change in the next 12

months?

Votes distribution (in % of total votes provided)

1. Credit Risk (Risk that borrowers or counterparties will fail to meet its obligations in accordance with

agreed terms)

2. Market Risk (Risk of losses in on and off-balance sheet positions arising from adverse movements in

market prices)

3. Liquidity Risk (Risk for solvent institutions to lose their ability to make agreed upon payments in a

timely fashion as well to raise funding in short notice)

4.

Q1 2020 Q2 2020

Q1 2020 Q2 2020

Q1 2020 Q2 2020


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5. Operational Risk excluding cyber and IT (Risk of human errors, control failures, failure of internal

processes, model risk, risk of frauds, third party risk, physical safety risk)

6. Cyber Risk (Risk of events that can lead to data breaches, financial loss, reputational damage, and

disruption of operations caused by a failure of IT systems and procedures)

7. Conduct Risk (Risk of actions that lead to customer detriment or has an adverse effect on market

stability and effective competition as well as a failure to comply with a regulatory defined code of conduct)

Q1 2020 Q2 2020

Q1 2020 Q2 2020

Q1 2020 Q2 2020


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8. Regulatory Risk (Risk that a change in laws and regulations or unintended consequences of that

change will materially impact a security, business, or market)

Q1 2020 Q2 2020


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APAC Risk Sentiment Index: Q2 2020 Update

In Q2 2020, the European Risk Management Council has updated its APAC UK Risk Sentiment Index

(RSI). Chief Risk Officers and other senior risk executives provided their views on the future trends of

seven types of risk. Using the survey results, the Council aggregated the data into a forward-looking

index that reflects expectations about the risk landscape of the APAC financial services in the next 12

months. Numerically, the RSI reflects the adjusted percentage of respondents who consider that risk

will increase in the next 12 months.

Summary

- The unfolding COVID-19 crisis had a profound impact on sentiment of chief risk officers

based in Asia-Pacific. The gloomy expectations of these risk leaders are well characterised by three

all-time records registered by our Q2 2020 risk sentiment survey.

- The aggregated RSI in Q2 2020 soared to the all-time high level and reached 0.59 (Figure 1).

It has become a turning point of a downward trend that we observed from Q4 2018.

- RSI for credit risk jumped from 0.57 to 0.95 and has become the highest ever registered

index level for credit risk and for any other risk types since a launch of APAC RSI. This is just 0.05 less

than the theoretical maximum. 90% of respondents said that they expected credit risk to increase

substantially in the next 12 months, while another 10% answered that credit risk would increase

slightly.

- Q2 2020 RSI for marker risk is another index with the historically high level reflecting

pessimistic expectations of the respondents. The index more than doubled from Q1 2020 and

reached 0.76 (Figure 1).

- Out of seven risk types, only RSI for regulatory risk decreased in Q2 2020 compared to that

in the previous quarter (Figure 2).

Figure 1. APAC RSI trend since the launch of the index

Aggregated RSI

RSI Credit Risk RSI Market Risk RSI Aggregated


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Figure 2. APAC RSI 12-month trends for individual risks: Q3 2019 – Q2 2020

In your opinion, how will the following risks for APAC financial industry change in the next 12

months?

Votes distribution (in % of total votes provided)

1. Credit Risk (Risk that borrowers or counterparties will fail to meet its obligations in accordance with

agreed terms)

2. Market Risk (Risk of losses in on and off-balance sheet positions arising from adverse movements in

market prices)

Q1 2020 Q2 2020

Q1 2020 Q2 2020


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3. Liquidity Risk (Risk for solvent institutions to lose their ability to make agreed upon payments in a

timely fashion as well to raise funding in short notice)

4. Operational Risk excluding cyber and IT (Risk of human errors, control failures, failure of internal

processes, model risk, risk of frauds, third party risk, physical safety risk)

5. Cyber Risk (Risk of events that can lead to data breaches, financial loss, reputational damage, and

disruption of operations caused by a failure of IT systems and procedures)

Q1 2020 Q2 2020

Q1 2020 Q2 2020

Q1 2020 Q2 2020


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6. Conduct Risk (Risk of actions that lead to customer detriment or has an adverse effect on market

stability and effective competition as well as a failure to comply with a regulatory defined code of conduct)

7. Regulatory Risk (Risk that a change in laws and regulations or unintended consequences of that

change will materially impact a security, business, or market)

Q1 2020 Q2 2020

Q1 2020 Q2 2020


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Copyright © 2020. All Rights Reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any

form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission. Whilst every effort has been taken to verify

the accuracy of the information presented at this publication, neither the European Risk Management Council nor its affiliates can accept any responsibility

or liability for reliance by any person on this information.

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Risk Landscape Reviewriskcouncil.org/wp-content/uploads/2020/07/Q2-2020-Risk... · 2020. 8. 8. · Risk Landscape Review European Risk Management Council - June 20 2 DEAR READER,