Yahoo Finance Thriving on risk: Three predictions on the future of compliance amid hyper digitalisation
A connected GRC strategy is needed to balance growth and responsibility in a digital world.
Asia Pacific is leading the digital transformation race, setting the pace globally according to a recent McKinsey report, stating that COVID-19 has accelerated digital transformation by 10 years across Asia Pacific, compared to seven years in other regions.
This region-wide surge has put transformation on the national agenda of many Asia Pacific governments. Singapore, for example, has released a Smart Nation 2025 blueprint, while China, Indonesia, Thailand, and others, have similar ambitions to optimise their budding digitalisation initiatives.
Pro-digital governments and regulations provide a landscape for Asia Pacific tech companies and entrepreneurs to invest, grow and experiment with new currencies. With the rise of digital assets like crypto-currencies, NFTs, and digital real estate in the metaverse, extreme disruption in this space is giving way to a new paradigm of risk.
For an effective digital environment to meet the desired objective, it is crucial that risk be rethought and go beyond traditional risk areas. But the pace of change can throw off regulators, with EY noting that digitalisation is reshaping the delivery of services, the form of goods, and even assets themselves—creating fundamental issues for regulators.
As regulators grapple with these changes, how can businesses evolve to become more agile, with strong governance that enables innovation and increases competitiveness while still aligning with the regulatory landscape?
Here are three forecasts for the future of compliance in a super-digital world.
Individual responsibility to come to the fore
A striking observation I've made over the past several years is how quickly consumer behaviour has changed, especially when it comes to assets and investments. The rise of neobanks and cryptocurrency exchange platforms have allowed many to access funds, as well as invest in new ways, trade stocks, and handle crypto-currencies hassle-free.
Asia Pacific investors are among the first-movers in this space. They feel more optimistic about the value of blockchain, and tokens — compared to others around the world — according to a 2022 outlook report published by the cryptocurrency exchange Ripple.
However, the lack of regulatory oversight can make it a minefield to navigate. Even if they are huge rewards on the other side, taking advantage of the disruption is no mean feat.
While “caveat emptor” makes sense in countries where regulation is less developed, no market—even a world-class financial hub—is immune to volatility risk. Singapore and Hong Kong, for example, have seen the collapse of high-profile digital currencies and companies in recent months.
It will be years before regulators can catch up to the disruption happening in cryptos, gaming, and the metaverse. In the meantime, governance will fall on individuals and provider communities, that have to come together, to grow responsibly.
Risk management to be embedded into fintech products
On the enterprise side—for those building the tools people use in these super-digital spaces—don’t expect to see much change in the way risk and compliance is handled, especially once regulators do catch up and set guidelines around safe practices. The basic steps of risk management will not change.
Instead, watch for how quickly risks occur and how quickly mitigations must be taken. For example, where once hot investments could grow exponentially or tank in days, this can now take place in a matter of hours. The metaverse is a fine example of this, where the cost of digital real estate can shoot up from three cents to six dollars.
The nature of digital spaces means change is rapid and risk is inevitable. We predict that governance, risk, and compliance measures will become paramount to ensuring organizations are acting responsibly, avoiding fines and thwarting cyber-attacks.
It is increasingly evident that managing these risks necessitates a shift away from assurance after-the-fact to built-in preventive and alerting functions. We predict that we will see automated solutions being embedded into core products as a means of counteracting and mitigating risk in line with how quickly risk can evolve in digital spaces.
A senior HSBC executive described Asia Pacific as a "global sandbox for innovative new-economy experiments," and that its expected to lead the way. The region is a hotbed for fintech innovation thanks to diverse funding options and a young, tech-embracing consumer base that is less brand-loyal. Asia Pacific is also home to three of the top-10 most unbanked countries in the world – Vietnam, Indonesia, and the Philippines.
AI, blockchain to shape the evolution of risk
Blockchain has entered the mainstream with well-established companies providing blockchain-backed tokens and assets to consumers. As stakeholders become comfortable understanding the financial, operational, and regulatory risks that come with the territory, I believe AI and blockchain will become key considerations when it comes to audit, risk and compliance.
While North American and European fintech markets lead blockchain adoption, Asia Pacific is gaining ground. Acceleration in Asia Pacific is built on growing investment in blockchain solutions that enhance fundamentals such as transaction processes, mobile applications, websites, and call centres.
Blockchain frameworks encode smarter, decentralised protections for users. The extension of blockchain technologies to the governance, risk, and compliance world is imminent. We are beginning to see an acceleration of this in applications like supply chain risk. Through product traceability and smart contracts, or in compliance applications, commercial organisations and regulators could benefit from immutably tracking action and adherence.
These predictions point to an exciting future—especially in Asia Pacific—where digital transformation is universally welcomed by the public, businesses, and governments.
Pioneers in these digital and disruptive spaces are seeing exciting returns on their early bets. The disruption taking place is truly great for the expansion of global participating communities, even with the risks that come with change.
No matter what happens in the next several years, it’s important to remember that digitalisation, disruption and technology and its applications—while exhilarating at times—come with big doses of risk, even when the rules governing that risk have yet to be written. Organisations, regulatory bodies, industry watchdogs and consumers must ensure that they apply Connected GRC strategy to balance growth and responsibility.
Michel Feijen is the managing director for APAC at MetricStream
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