Open banking is a framework in which consumers and businesses can authorize third party financial service providers to access their financial transaction data using secure on-line channels, allowing them to access new products and services that enable them to better manage their financial affairs.

The discussion yielded key insights for Canadian financial services as a national framework for open banking materializes. The contributors valued a customer-focused approach, grounded in user consent, and highlighted the opportunities to enhance both consumer choice and protection. Some speakers urged market incumbents to treat financial data-sharing as a catalyst for innovation and product improvement rather than as a mere compliance measure. Furthermore, multiple panelists emphasized the need for an optimal balance between prescriptive- and principles-based regulation. Jurisdictions can set forth precise rules for open banking deployment or maintain a looser scheme that allows financial institutions greater flexibility to adapt at an operational level, albeit while maintaining an overarching vision, clear objectives and some attention to process. Open banking in Canada could also serve as part of a broader legal effort to define user rights in the digital economy.

So, what’s next for Canada? Stay tuned in the months ahead as GRI continues the dialogue through its research and round tables and we anticipate the response from the Federal Advisory Committee on Open Banking.

In his remarks, Gordon Giffin reflected on his life experience as a youth growing up in Canada and, later, as a dignitary in Ottawa, and situated this personal account within the larger history of U.S. – Canada relations. Ambassador Giffin noted the extensive economic and human connections between the two countries and identified their collaboration on foreign affairs as being critical to the success of our bilateral partnership.

Please mark your calendars for next year’s conference, October 8th, 2020, when we will, once again, feature high caliber speakers, such as Ambassador Giffin, sharing their experiences and valuable perspectives.

Cyber security has become one of Canada’s biggest concerns in recent years – cyber attacks cited by some as being the second most common threat among business leaders, falling only behind business interruptions, a product of cyber attacks. This interactive session highlighted the need for organizations to break down silos, ramp up communication and build resiliency plans.

Polled as to their confidence in their organizations’ abilities to manage cyber risk as well as the financial sector’s readiness to deal with a systemic-wide cyber attack, session participants offered a range of responses. Many acknowledged the need for a cross-industry response.

Nick characterized today’s financial sector as being challenged with many risk scenarios; among them: the evolution of AI, increased access to financial products, increased proliferation of devices, increased complexity of connections and hard to detect breaches, and connections to third parties (who are being hacked). On the latter point, Vanda and Nick emphasized the importance of testing external contractors. More generally, they positioned that cyber security needs to be embraced by everyone. Internally, teams and departments must work cohesively to manage risks and detect risk scenarios. Knowledge sharing and collaboration are vital. Externally, the cyber community needs to collaborate strategically and bolster communication to ensure cyber resilience.

You can count on hearing more in the months ahead as GRI continues to make learning more about cyber security a top priority.

Machine Learning (ML) is a branch of Artificial Intelligence (AI) which is concerned with developing ways in which machines can imitate human intelligence. Recent advances in computer processing speeds and reductions in data storage costs allowed the use of ML to reach conclusions drawn from large data sets. As a result, in recent years there has been significant progress in automated decision making which, in turn, has yielded substantial cost reductions.

Although ML has many financial applications (credit risk assessment, anti-money laundering, fraud detection, derivative valuations), its use poses various risks (e.g., legal and bias risks). It is difficult to explain some ML algorithms, thereby presenting another problem that challenges wide adoption of ML. For example, some regulators in the European Union stipulate that customers should have the right to obtain explanations for the decisions made by ML algorithms. Financial security could also be undermined as ML becomes more and more powerful and widely adopted.

AI will continue to be a significant focus for GRI in 2020.

Tom discussed three risks that investors need to be mindful of: climate, innovation and ignorance. Highlights of the discussion follow:

• Temperatures will likely shoot past 2 degrees Celsius to mid-extreme levels. This will de-stabilize climate in ways that are difficult to imagine. We can attempt to mitigate this climate change risk through a clean technology revolution (e.g. next generations of solar, energy storage and electric vehicles).

• The innovation inherent in this technology revolution, while important in mitigating climate risk, gives rise to other challenges. Decentralized, solid-state power is coming our way and incumbent energy producers will be disrupted. Cleantech will permeate every corner of the economy just as the internet does now.

• Most discussions have, in the past, been based on Nordhaus Integrated Assessment Models which estimate future costs associated with a warmer world. These models largely ignore the catastrophic impacts of climate change, are used for macro studies and have little linkage to the micro components of an economy. This leads to potential ignorance when it comes to fully costing future outcomes.

What must investors do? Play offense: participate in financing in and deploying efforts and innovations to adapt to climate change. Play defense: understand and address the disruptive impact of innovations on existing assets, businesses and practices that are increasingly less viable.

GRI has recently established a Sustainable Finance Hub. Lots more education events, research and articles coming your way soon!

In his provocative remarks, Jonathan Hausman described a fundamental paradigm shift in the global economic system that demands serious consideration on the part of Canadian investors. The unipolar international order centered on the United States is crumbling, one characterized by an American security architecture, open markets, and free capital/labour. A multipolar world is emerging in its place, exemplified in part by the rise of China and U.S. global retrenchment. The business conditions afforded by the old order were optimal for financial services, and the industry became accustomed to this incumbent paradigm. In the new system, however, a singular model is giving way to a diversity of alternatives, creating a world of greater uncertainty. Hausman concluded that new strategies are required to cope with geopolitical multipolarity, including all-weather portfolio design, narrative-based analyses as a supplement to conventional risk management tools, regional expertise and region-specific business models, and human capital diversification that leverages social science and humanities knowledge.

Geopolitics is a new focus area for GRI. Stay tuned as we work to build foundational knowledge in geopolitical risk, explore methodological approaches and deliver topical insights.

Portfolio Managers (PMs) are increasingly aware that climate risk and extreme weather events are problematic, and that related risks need to be factored into their portfolio management. Blair and his team have developed a practical framework for PMs to identify the top problems relative to each sector they’re invested in, and the questions they should be asking related to risks from climate change and extreme weather events.

Blair illustrated his team’s process for identifying and shortlisting key extreme-weather risks by presenting a case study of their work in the energy transmission and distribution industry (T&D). Gathering COOs with deep T&D expertise, and using a matrix of weather perils, the team asked these experts to identify ”what things can go wrong” and, then, to select the top two of greatest concern – in this case: (1) vegetation falling onto transmission lines sparking fires and (2) heavy ice causing transmission lines to collapse. The experts were then challenged to identify the optimal processes to protect against these problems - in this case: (1) clear vegetation along transmission corridors and (2) install visual monitors to gauge ice loading and generate more electricity to melt ice as necessary. With these key problems and optimal remedies identified, a PM would be equipped with the issues and questions to pose to a T&D company and, based on the company’s response, to gauge how well risks are being managed.

This process can be applied across industries – resource and non-resource based - leveraging the expertise within their various industry associations to identify industry specific risks and remedies. Beyond being of value to portfolio managers, this simple process can be leveraged by securities commissions to establish appropriate disclosure templates and by credit rating agencies to fine tune their risk evaluation.

The last decade has witnessed a tremendous growth in cryptocurrencies which are now widely used and have become the intense focus of discussion for governments around the world. For example, bitcoin (the first widely-used cryptocurrency) is based on a rather novel paradigm – a paradigm of trust. There is no central authority that validates bitcoin transactions and all transactions are based on trust among participants within the Bitcoin network. Regulators are especially concerned as money laundering and financial fraud are much harder to detect if transactions are made in cryptocurrencies.

Panelists highlighted the significant and fast pace of change that the risk management profession has seen over the last 10 years. The role of risk professionals is evolving with FIs looking for professionals that offer a broad blend of talents and attributes; they need to be: technically skilled, able to interpret models, operationally savvy, able to make strategic decisions, engaging and entrepreneurial. More high-potential individuals need to be guided into career paths in risk management and that it is vital to ensure that pipelines of talent are secured through effective succession planning. Current and future talent recruits need to be trained to be agile and transformative leaders; attracted through proper career branding and compensation; and diverse in their opinions, ethnicities, genders, and personalities.

A perennial favourite for our summit attendees!

Panel members agreed that risk management is more complex today than a decade ago. The range of risks and regulations have increased and become more connected. At the same time, subsequent to the financial crisis, financial risk management processes have matured and there is heightened emphasis on evaluating non-financial risk. With better diagnostic tools, and a wider risk taxonomy, we have become better at diagnosing risk.

Discussion was robust on a wide-ranging number of topics: geopolitical risk and how globalization is being reframed, consumer expectations’ influence on the pace of change, AI and machine learning, change management within the risk management framework, the evolving role of the CRO, risk management as a career, and more.

Here are sample observations they shared specific to the CRO role and risk management profession:

• The role of the CRO is changing. It has become more strategic and embraces a greater breadth of exposure and opportunities. Attracting talent is becoming easier and bench strength is stronger than ever before.
• Careers in risk management have become very attractive with its professionals having multi-dimensional visibility across organizations’ footprints.
• To excel in risk management, it is critical to gain depth of experience in different roles within different industries. Front line experience is key – be a risk owner, make decisions, make mistakes. Great risk managers are curious, bright and motivated.

As financial institutions, governments, policy makers and regulators seek to excel in an ever-more complex risk environment, GRI will continue to investigate the critical issues and provide intelligence, information and training to enable excellence.