Transforming Risk & Compliance in the Age of AI

The top 3 insights from this article:

• Embracing the power of AI: Financial brands should recognize and leverage the myriad benefits that AI can bring to risk management and compliance. This includes improved efficiency, scalability, and faster decision-making.
• Cultivating a growth mindset: Leaders must adopt a growth mindset, embracing uncertainty and continuous learning in the face of rapid changes. Emphasizing collaboration and open dialogue with risk and compliance teams can help create a supportive and innovative environment.
• Human connection as a driver of growth: By putting people at the center of decision-making and transforming compliance from a "no" to a "tell me more" approach, risk and compliance teams can become drivers of future growth, fostering collaboration and innovation within the organization.

Changing the Conversation Around Risk and Compliance

The guest for this episode of the Banking on Digital Growth Podcast was Michelle Prohaska, the Chief Risk Officer and Compliance Officer at Nymbus. Michelle and her team are working to transform the narrative around risk and compliance.

Instead of being seen as an obstacle, they want to show it as an opportunity for innovative breakthroughs. And this can be achieved through a simple, but profound shift - caring about people and putting them at the center of all decision-making.

"We look at these functions, and we look at the regulatory environment that we're in, things are different, things are changing. And I really think that when we look at risk and compliance with the perspective of “tell me more”, instead of how do we get to “no”, we get two completely different responses, and we can really create teams that can create a difference."

Risk and compliance have traditionally been seen as the "gatekeeper," often viewed negatively. But Michelle believes it's time to change this perception. By creating a culture of "that's interesting, tell me more" instead of an immediate "no," she believes that risk and compliance can actually lead to innovative ideas and growth.

Historically, risk and compliance were not the place for innovative ideas or a driver of change. However, by shifting the narrative around these concepts, Michelle believes that risk and compliance can become a strategic differentiator in the business, leading to more collaboration and innovation.

Building Collaborative Relationships

The heart of growth lies in collaborative relationships. Michelle emphasizes this approach within her team at Nymbus, "Very rarely will you ever get a straight no from us. Generally, we'll say, 'Hey, I'd love to hear more about the idea. What are you trying to accomplish?'"

By adopting a more open and collaborative approach, Michelle believes that risk and compliance can drive innovation and growth in the financial industry. After all, the true power of growth lies in our ability to connect at a deeper level and to see the potential in each other's ideas. In a world of exponential change, that's a perspective we can all bank on.

The Power of Mindset in Risk Management

According to James Robert, adopting the mindset of a curious kindergartner could be our best bet. This means acknowledging that we don't know everything, being open to learning, and continually seeking perspectives from others. We must aim at maintaining a positive perspective amid negative consequences caused by bad actors, especially in the age of AI.

Michelle spoke about the power of mindset in managing risks, particularly in the fast-paced world of AI. With risk and compliance undergoing massive changes, the natural reaction to risk is avoidance.

However, if we want to innovate and grow, we can't avoid all risk. Instead, we need to manage it through open and honest conversations about the key problems we face. She highlighted the need for collaboration in deciding whether risks are acceptable, can be mitigated, or need to be avoided altogether. "Assuming the best instead of the worst and a big factor for us is assuming positive intent," she remarked.

Tackling Change Fatigue and Creating a Sense of Community

The ongoing changes, especially since the onset of the COVID-19 pandemic, have led to burnout among financial brand leaders. Recounting his interactions with industry leaders, James Robert mentioned that they often expressed exhaustion from navigating these changes, with some comparing the current era to the challenging times of the 2008 financial crisis.

But how does one address this exhaustion and anxiety associated with relentless change?

Michelle’s answer to leaders grappling with change fatigue was to create a community. By connecting with like-minded individuals, leaders can empathize with one another, share experiences, and find innovative solutions to common problems. The sense of community fosters a space where people can openly discuss their challenges and find support.

Personal Strategies for Dealing with Exponential Change

When asked about her personal strategies for dealing with the complexities of exponential change, Michelle cited the power of connection, learning from diverse perspectives, and continuous growth. She suggested engaging with clients, learning about their experiences, and focusing on the positives. "We manage differently today, we work together differently in a remote-first environment. Understanding where I can continue to grow and develop as a leader, and then how I interact with my team and how that's different," she explained.

Despite the rapid changes since early 2020, Michelle was surprised at the slower-than-anticipated pace of regulatory change, suggesting that regulators still struggle with how to address this new reality. However, she reassured leaders that it's okay not to have all the answers immediately.

What's more important is to embrace the fact that we are operating in an environment where things are still uncertain, and continuous learning is key.

Embracing uncertainty, fostering a growth mindset, and building communities appear to be the way forward in this changing landscape. As we navigate through these unchartered territories, these insights serve as a compass to guide us. As the saying goes, the only constant in life is change, and how we respond to change defines our journey.

Embracing AI Advantages for Risk and Compliance

Michelle highlighted the myriad benefits that AI can bring to risk and compliance in financial brands. She pointed out the efficiency, scalability, and accelerated decision-making as key advantages. However, she acknowledged the concerns among risk and compliance professionals about entrusting judgment-free decision-making to AI. Addressing this challenge requires the establishment of testing standards to ensure unbiased AI decisions.

She also candidly expressed that many risk and compliance professionals find it difficult to quantify AI's potential impact. She stressed the importance of being able to categorize AI outputs in terms of risk levels. As AI is still in the developmental phase, understanding its applications becomes critical for effective implementation.

James Robert drew a connection between the rapid transformation in the finance sector and AI's potential. He referenced Wells Fargo's launch of the first online banking platform in 1995 as a milestone and proposed that we are at the brink of a new era in finance. Lay also inquired about the future of Chat GPT and general AI, specifically within financial services.

Michelle acknowledged the transformative potential of chat GPT in the financial sector, highlighting its utility in policy and procedure drafting and marketing communication. She emphasized the importance of educating risk and compliance professionals about AI to identify optimal use cases.

She also addressed the major risks faced by financial brands, including the relentless pace of change and the need to keep up with evolving fraud technology. She emphasized the significance of learning from past experiences to prepare for the future.

Michelle advocated for initiating internal transformations within financial brands, aligning risk and compliance teams with strategic objectives. Such alignment can lead to a more streamlined customer experience at every touchpoint.

Addressing the Complexity of Change

For individuals overwhelmed by the complexity of change, Michelle recommended fostering open, honest dialogues with risk and compliance teams. Collaboration and effective communication can help address common struggles and unlock new pathways for growth.

In an era of rapid evolution, the insights from this conversation provide a roadmap for financial brands seeking to navigate the future successfully. By leveraging AI in risk management and compliance, financial institutions can pave the way for innovative growth while embracing continuous learning and collaboration.

Take Action Today:

• Integrate AI for risk management: Financial brand leaders should actively explore and integrate AI solutions into their risk management and compliance processes. This includes leveraging AI's advantages such as improved efficiency, scalability, and faster decision-making. To address concerns about AI's judgment-free decision-making, establish testing standards to ensure unbiased outputs. Invest in education and training to help risk and compliance professionals understand AI's potential and identify optimal use cases within the organization.
• Foster a growth mindset culture: Create a growth mindset culture within the organization, encouraging employees to embrace uncertainty and continuous learning in the face of rapid changes. Promote collaboration and open dialogue with risk and compliance teams to create a supportive and innovative environment. Transform the narrative around risk and compliance from being seen as an obstacle or cost center to being viewed as opportunities for innovative breakthroughs. Encourage the "tell me more" approach instead of an immediate "no" response, as this can lead to discovering new ideas and growth opportunities.
• Prioritize human connection: Recognize the importance of human connection in driving growth for individuals, teams, and organizations. Facilitate deeper connections with clients and employees, especially in an era of digital connectivity where meaningful human interactions can be easily overlooked. Place people at the center of decision-making, and consider their perspectives when navigating through complex changes. Build a sense of community within the organization where like-minded individuals can connect, empathize, and share experiences to address change fatigue and foster a positive and supportive atmosphere.

By taking these action items, financial brand leaders can position their organizations for transformative growth, harness the power of AI to enhance risk management and compliance, and create an environment that thrives on collaboration, innovation, and meaningful human connections.

For more about financial transformation, reach out to James Robert Lay at the Digital Growth Institute.