Risk monitoring is often used interchangeably with risk management.
There are key differences, however, and understanding them will help your company develop a better business strategy. Let’s break it all down in detail.
What Is Risk Monitoring?
Risk monitoring is a crucial step where companies measure and review the efficiency of their risk strategies. It is a key component of the larger risk management framework and often leads to the creation of key risk indicators (KRIs).
While risk monitoring happens at the end of the risk management process and as a result of it, it needs to be ongoing and reviewed often to ensure that appropriate risk responses are actioned in a timely fashion.
The risk monitoring process can be overseen by the risk team but it’s also common for compliance teams, anti-fraud teams, or trust and safety teams to take that responsibility.
How Does Risk Monitoring Fit Within the Risk Management Process?
Risk management is a complete framework, and the monitoring part usually takes place once a strategy has been put in place. Once an organization has created an action plan to tackle risk, the team can then monitor its impact.
In general, the risk management process follows a handful of steps:
- identifying risk
- assessing risk
- treating risk
- monitoring and reviewing risk
This is why the deployment of key risk indicators becomes tremendously valuable. These concrete numbers help you measure and monitor the success (or failure) of your risk strategy.
Risk monitoring may be the responsibility of the whole risk management team, or it may be delegated to specific job roles. However, because risk goes by different names within different departments, risk monitoring could very well be the responsibility of the payments team, content moderation team, or compliance team.
It is worth noting that risk and compliance are still an afterthought in a number of industries. A report compiled by Ropes & Gray states that 57% of senior-level executives rank risk and compliance as one of the top challenges they feel least prepared to address.
Meanwhile, 79% of organizations said that cyber risk counted as a top 5 concern for their organization.
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What Are the Different Types of Risk Monitoring?
Risk monitoring can be performed continually, regularly, or ad hoc. Its frequency may depend on the kind of monitoring your company must perform:
- Voluntary risk monitoring: When the risk monitoring process isn’t legally required but is a key part of your risk management strategy.
- Mandatory risk monitoring: Companies may be legally required to monitor risk based on the vertical they operate in. Transaction monitoring, for instance, can be considered a form of mandatory risk monitoring that banks and financial institutions must perform to remain compliant with AML regulations.
How Does Risk Monitoring Impact Organizations?
Risk monitoring takes time and effort. It requires continuous input from the relevant team to measure, assess and optimize risk strategies. Because monitoring risk manually can be a drain on resources, many companies find that third-party software solutions allow them to focus on the strategy rather than on developing technical tools.
For instance, a team whose purpose is to monitor transactions (for instance to avoid AML fines) may find it easier to deploy third-party transaction monitoring software rather than build the same tools in-house.
Risk Monitoring Example
Because risk is industry-specific, it’s hard to find an example that will cover all bases. But let’s look at an example of risk monitoring specific to the financial world: anti-money laundering.
Banks, neobanks, and other financial institutions have to ensure they don’t allow financial terrorism and money laundering. This is a regulatory requirement.
Now, this is what an AML risk management framework could look like:
- Identify risk: Ensuring that the bank doesn’t accept customers who will launder money through its products or services.
- Assess risk: With AML, the potential risks include running afoul of government regulators (and having to pay fines) and helping criminals launder money.
- Treat risk: The company may want to deploy anti-money laundering software and a dedicated team of compliance experts to meet the regulators’ requirements.
- Monitor and review risk: The software should let the team know exactly how many users have been blocked due to AML risk. You can also create reports to measure the rates of false positives or false negatives, and adjust how stringent your anti-money-laundering rules are.
Since a key part of AML risk monitoring involves reviewing transactions over a certain threshold, it would also be worth looking at the rates of transactions that resulted in declines, reviews, or were accepted.
You can then use any anomalies in these numbers to monitor your risk strategy and improve it over time.
What Skills and Tools Are Needed for Risk Monitoring?
Risk management is a cornerstone of a company’s global strategy. Risk monitoring requires the same skills needed to get a holistic view of risk across multiple departments, including:
- the ability to collect data and connect it to relevant business practices
- an understanding of how different departments interact with each other – especially when risk creates an overlap between multiple teams
- a complete understanding of the business model, to ensure the risk monitored isn’t completely out of scope.
When it comes to must-have tools and features, they vary greatly depending on the risk factors but, clearly, an ability to record and log data is paramount.
How to Use SEON for Risk Monitoring
SEON is first and foremost a fraud protection platform. However, its flexibility and modularity make it suitable for a number of risk management and monitoring practices, including:
- User segmentation: Data enrichment is a key component of the SEON engine, designed to give you more information about your users and customers – ideal whether you’re trying to reduce fraud risk or to identify high-risk customers.
- Risk scoring: SEON lets you create rules which then calculate a risk score. Whether it’s to understand how risky a payment is, spot fake IDs, protect customer accounts or know how a client may pose an AML risk, these scores can help you monitor risk and improve your strategy over time.
- Real-time protection: Intel gathered through the real-time data enrichment and analysis will shed more light on new and ongoing threats to the company, giving a clearer picture of the risk landscape.
- Compliance: Risk and compliance go hand-in-hand, and SEON is increasingly relied upon for KYC or AML by companies in a wide range of verticals. For example, identifying and catching outgoing payments over the AML threshold or to known sanctioned individuals or entities.
- Machine learning: SEON’s transparent machine learning module learns from the risk scoring as it happens – with or without human input – and recommends new rules to mitigate risk that can inspire the wider risk strategy and identify holes in your defense.
And, finally, fraud prevention is where SEON really shines, allowing companies of all sizes to protect themselves against the risks caused by fraudsters, bad agents, and cybercriminals.
Risk monitoring is a step of the risk management process where companies must measure the success of their strategies to improve them. Organizations must first understand risk, deploy a risk strategy, but also monitor its results to adapt it if needed. This last step is what is meant by risk monitoring.
Risk monitoring is only possible if you have data about your risk strategy and challenges. The methods used are to either continuously monitor risk in real-time or to review it regularly. Most companies combine both methods to ensure their risk strategies are effective.
Monitoring risk involves having access to the right business data and a clear risk strategy in place. Most companies will rely on KRIs or Key Risk Indicators to monitor risk and measure the success of their risk strategies.
Not exactly. Risk monitoring refers to having a clear overview of the risk landscape in your sector and for your organization, while transaction monitoring is a more set-in-stone practice, where financial transactions are monitored in certain sectors, for AML reasons. However, you may have also heard of risk-based transaction monitoring, which is transaction monitoring informed by risk factors.
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