From Oversight to Architects of Digital Resilience - DORA Reshapes the Board's Role

The financial sector faces escalating cyber threats in its digital evolution, prompting the introduction of DORA, the Digital Operational Resilience Act, aimed at fortifying defenses. DORA requires supervisory boards to pivot from mere compliance to becoming architects of digital resilience, orchestrating robust risk management strategies. It emphasizes the importance of understanding and addressing third-party dependencies while fostering a culture where resilience is ingrained, enabling boards to navigate digital disruption with strength and agility.

The accelerating pace of digital transformation in the financial sector has fundamentally altered the landscape of risks faced by banks. Operational disruptions caused by cyberattacks, technology failures, or third-party dependencies have the potential to trigger systemic crises across the interconnected financial system. In response to these evolving threats, the European Union's Digital Operational Resilience Act (DORA) represents a watershed moment, establishing a harmonized framework to enhance the sector's ability to withstand and recover from digital disruptions. For supervisory board members of banks, DORA signifies a call to action, demanding a renewed focus on digital operational resilience and a comprehensive oversight approach.

DORA goes beyond existing cybersecurity regulations by mandating in-depth ICT (Information and Communication Technology) risk management across the entire financial ecosystem. Supervisory boards hold the primary responsibility for ensuring their institutions are adequately prepared for the challenges posed by DORA. This entails a profound understanding of the regulation's core principles, a strategic recalibration of risk management approaches, and a commitment to fostering a culture of resilience across all organizational levels.

One of the most critical functions of supervisory boards in the wake of DORA is the implementation of a robust ICT risk management framework. Board members must not only approve ICT-related policies and procedures but also actively monitor their effectiveness. This requires a shift in mindset, recognizing that ICT risk is not a purely technical issue but a fundamental business risk. Boards need to ensure a holistic view of the institution's digital footprint, mapping critical business functions and identifying potential vulnerabilities stemming from internal systems, external dependencies, and the ever-evolving threat landscape.

Effective ICT incident management is another cornerstone of DORA compliance. Supervisory boards must play a crucial role in defining incident reporting thresholds, escalation procedures, and communication protocols with both internal and external stakeholders. DORA emphasizes the need for swift and decisive action in the face of disruptions, as well as thorough analysis of root causes to prevent future recurrences. Board oversight in this area helps drive continuous improvement in the institution's ability to manage operational crises.

Furthermore, DORA spotlights the interconnected nature of risk within the digital financial ecosystem. The reliance of banks on a complex web of third-party ICT service providers introduces a unique dimension to risk management. Supervisory boards must ensure that meticulous due diligence processes are in place for the onboarding of new third-party providers and that contractual agreements explicitly address issues of ICT risk and operational resilience. The oversight role must extend beyond initial contracting, demanding the institution maintains continuous monitoring of its third-party relationships.

The implementation of DORA goes beyond technical compliance; it necessitates a culture where digital operational resilience is a top priority. Supervisory boards are best positioned to lead this cultural transformation. Through communication, incentives, and accountability mechanisms, board members can promote resilience-focused behavior across the organization. This translates into investing in robust technologies, proactively identifying and mitigating risks, and emphasizing the importance of effective incident reporting and response.

Effectively navigating the requirements of DORA requires board members to expand their knowledge and expertise. This may mean including individuals with deeper technical backgrounds in cybersecurity or digital risk management or seeking external advisors to support the board's decision-making. Additionally, remaining abreast of evolving regulatory expectations, industry best practices, and the changing threat landscape is essential for informed and proactive oversight.

In conclusion, the Digital Operational Resilience Act (DORA) marks a significant milestone in the evolution of the European financial regulatory landscape. For supervisory boards of banks, it demands a shift in focus and strategy. By embracing the core principles of DORA, fostering a culture of resilience, and driving the development of robust ICT risk management frameworks, supervisory boards can safeguard their institutions and contribute to the overall stability of the financial system.

https://FrankSchwabSpeaks.com

Published in DORA, digital, banking, digital, banking, supervisory, board on 15.04.2024 19:07 Uhr. 0 comments • Comment here

5 Imperatives for Board Leadership in Digital Banking Transformation

In an era where digital transformation in banking is non-negotiable for survival, board leadership faces unprecedented challenges and opportunities. Discover five crucial imperatives shaping the future of financial institutions, from embedding digital strategy at the core to fortifying cybersecurity defenses.

„Digital banking transformation is not a choice—it's imperative for survival.“

The banking sector stands at the precipice of unprecedented change, driven by the inexorable march of digital transformation. In this era, where adaptation is synonymous with survival, the role of board leadership in steering financial institutions towards a digitally empowered future cannot be overstated. Proactive board leadership is crucial to help financial institutions not only keep pace but lead the way in crafting the bank of the future.

In my experience the following five imperatives for board members are crucial for effectively navigating the digital landscape, ensuring not only the relevance but also the leadership of their institutions in shaping the bank of the future.

1️⃣ Digital as Core Strategy

In the digital age, strategy cannot afford to treat transformation as an ancillary endeavor but must integrate it as the very essence of the institution's trajectory. Board members must be the vanguards in this endeavor, asking pertinent questions, driving alignment, and identifying requisite digital talent. Key performance indicators (KPIs) such as Digital Channel Adoption Rate, Digital Sales Percentage, and Cost-to-Income Ratio serve as crucial barometers in assessing the efficacy of digital strategies.

2️⃣ Cultivating a Culture of Innovation

The ethos of innovation must permeate every facet of traditional banking institutions, necessitating a cultural metamorphosis. Board members play a pivotal role in championing agility and collaboration, fostering an environment conducive to rapid experimentation and cross-functional partnerships. KPIs such as Time-to-Market for New Products/Features, Employee Engagement with Innovation Initiatives, and Customer Feedback on New Features are instrumental in gauging the institution's innovation quotient.

3️⃣ Evolving the Customer Experience

In the digital realm, customer experience reigns supreme, and board members must prioritize its enhancement. Advocating for the voice of the customer, championing seamless journeys, and tracking KPIs such as Net Promoter Score, Digital Self-Service Resolution Rate, and Channel Abandonment Rate are imperative in ensuring that the institution remains attuned to evolving customer expectations.

4️⃣ Leveraging Data as a Strategic Asset

Data emerges as the linchpin in the digital banking paradigm, necessitating a strategic approach guided by board leadership. Establishing robust data governance policies, fostering insights-driven decision-making, and tracking KPIs such as Data Quality Index, Insights-to-Action Time, and Customer Personalization Effectiveness are pivotal in harnessing the transformative power of data.

5️⃣ The Cybersecurity Imperative

As banking operations traverse the digital realm, cybersecurity assumes paramount importance, demanding unwavering vigilance from board members. Oversight, a proactive stance, and adherence to compliance standards become non-negotiable imperatives. Tracking KPIs such as Number of Security Incidents, Incident Response and Recovery Time, and Compliance with Security Standards are indispensable in safeguarding the institution against cyber threats.

Conclusion

In conclusion, the digital revolution presents both unparalleled opportunities and formidable challenges for the banking sector. Board leadership, armed with a keen understanding of the imperatives outlined herein, holds the key to navigating this tumultuous terrain successfully. By embracing digital transformation as a core strategy, fostering a culture of innovation, prioritizing customer experience, leveraging data strategically, and fortifying cybersecurity measures, board members can chart a course towards a future where their institutions not only survive but thrive in the digital age.

https://FrankSchwabSpeaks.com

Published in digital, transformation, digital, banking, KPIs, customer, satisfaction, innovation, supervisory, board on 25.03.2024 19:31 Uhr. 0 comments • Comment here

6 themes members of the board of directors should know about the crypto currency & blockchain industry

[Updated January 2024] The cryptocurrency and blockchain industry has the potential to transform several industries. Board members are urged to proactively understand key themes, including disruptions, opportunities, legal considerations, risks, and industry dynamics, as the sector evolves.

The cryptocurrency and blockchain industry has the potential to reshape our perspectives on money, ownership, and trust. Cryptocurrencies and blockchain technology facilitate faster, cheaper, and more secure transactions, extending beyond digital currencies to include ICOs, STOs, and NFTs, among others. The current market cap of cryptocurrencies and blockchain tokens is approximately $1.76 trillion, representing nearly 2% of all global money.

As of August 2023, major cryptocurrencies such as Bitcoin, Ethereum, Ripple, Cardano, Dogecoin, and Tron are experiencing over 8 million daily transactions, a significant increase compared to August 2016.

Back in 2015, the World Economic Forum predicted that by 2027, around 10% of the global gross domestic product (GDP) would be stored on blockchain technology. Current trends indicate that this projection is on track. Notably, recent SEC approvals for cryptocurrency ETFs and new regulations like the European MiCA (Markets in Crypto-Assets) regulation are expected to further propel the crypto industry.

While the cryptocurrency and blockchain industry is still in its infancy, it is crucial for members of the board of directors to delve into key themes before these factors impact a company’s business model. It is recommended to gain insights into potential disruptions, new business opportunities, basic concepts and technologies, relevant laws and regulations, potential risks, and the dynamics of an emerging industry.

1. Potential disruption of several industries

There are several industries that are potentially disrupted by cryptocurrencies and blockchain technologies. Members of the board of directors should observe the following industries and look for signs of disruption.

Supply chain management: Blockchain technology can enable increased transparency and security in supply chain management, allowing for more efficient tracking of goods and materials.

Real estate: Blockchain technology can be used to create a more efficient and transparent system for buying and selling property, as well as for tracking and managing property ownership.

Healthcare: Blockchain technology can be used to securely store and share medical records, as well as to facilitate more efficient and secure communication between healthcare providers.

Gaming & entertainment: Cryptocurrencies and blockchain technology can be used to enable new forms of digital ownership and monetization of in-game assets.

Retail: Cryptocurrencies and blockchain technology can be used to enable secure and transparent transactions between retailers and customers, as well as to improve supply chain management and inventory tracking.

Financial services: Cryptocurrencies and blockchain technology have the potential to disrupt traditional financial services by providing a more inclusive and accessible way for individuals and businesses to access financial services, such as banking and payments.

2. New business opportunities

Cryptocurrencies & blockchain technologies have the potential to enable a wide range of new business opportunities. Some of the most relevant examples include:

Supply Chain Management: Blockchain can be used to create transparent and tamper-proof records of transactions in supply chain management, allowing for increased trust and efficiency.

Digital Identity: Blockchain can be used to create secure and decentralized digital identities, allowing for greater privacy and control over personal information.

Gaming: Blockchain can be used to create decentralized and transparent in-game economies, allowing for true ownership of virtual assets.

Tokenization: Blockchain can be used to tokenize assets such as real estate, art, and other collectibles, making it possible to buy and sell fractions of these assets.

Payment: The use of cryptocurrency as a form of payment enables faster and cheaper transactions, especially cross-border transactions.

Crowdfunding: Blockchain can be used to create decentralized crowdfunding platforms, allowing for more transparent and efficient fundraising for projects.

Internet of Things: Blockchain technology can be used to create secure and decentralized networks for the Internet of Things (IoT), allowing for greater trust and control over the exchange of data.

Decentralized finance (DeFi): Blockchain technology can be used to create decentralized financial services, such as lending and borrowing platforms, that operate independently of traditional financial institutions.

3. Basic concepts & technologies

It is recommended to introduce the basic concepts and technologies behind cryptocurrencies and blockchain to the members of the board of directors. Decentralization, immutability, transparency, cryptography, smart contracts, distributed ledger, limited supply, anonymity, borderless and digital are the most central ones.

Decentralization: Blockchain technologies and respective cryptocurrencies are decentralized, meaning they are not controlled by any single entity or organization. Crypto currencies are not controlled by any central authority such as a government or central bank. This allows for increased autonomy and control for users over their own funds.

Immutability: Once a transaction is added to a block and the block is added to the blockchain, the information in that block cannot be altered. This ensures the integrity and immutability of the data and crypto currency transactions stored on the blockchain.

Transparency: Blockchain technology allows for increased transparency by providing a public, tamper-proof record of all crypto currency transactions.

Cryptography: Blockchain and crypto currencies use cryptography to secure and protect transactions, making it a secure technology for storing and sharing sensitive information. This also ensures the integrity and security of crypto currencies.

Smart Contracts: Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. These contracts can be stored and replicated on the blockchain network.

Distributed Ledger: A distributed ledger is a database that is spread across a network of computers. Each copy of the database is identical and is updated simultaneously.

Limited supply: The total supply of most cryptocurrencies is limited, meaning that there is a maximum number of units that can be created. This can help to prevent inflation and ensure the value of the currency remains stable.

Anonymity: Cryptocurrencies can provide a high level of anonymity for users, as transactions are recorded using a public key rather than a name or personal information.

Borderless: Cryptocurrencies can be sent and received from anywhere in the world, and the transaction can be done almost instantaneously, regardless of geographical boundaries.

Digital: Blockchain & cryptocurrencies exist only in digital form and are stored and transferred electronically.

4. Relevant laws & regulations

Members of the board of directors should consider a number of laws and regulations related to cryptocurrencies and blockchain when developing their policies and procedures. It is important to note that the laws and regulations surrounding cryptocurrencies and blockchain technology vary by jurisdiction.

In June 2023, the European Union implemented one of the most advanced crypto regulations: 'MiCA' - The Markets in Crypto Assets Regulation.

Some of the most relevant general laws are AML, KYC, taxation, securities, GDPR and smart contracts regulations:

Anti-money laundering (AML) laws: These laws aim to prevent the use of cryptocurrencies for illegal activities such as money laundering and terrorist financing.

Know-your-customer (KYC) regulations: These regulations require cryptocurrency exchanges and other companies to verify the identity of their customers.

Taxation laws: Different countries have different tax laws for cryptocurrencies, and it is important for individuals and businesses to comply with these laws to avoid penalties.

Securities laws: Some jurisdictions consider certain cryptocurrencies to be securities, and they are subject to securities laws and regulations.

Data privacy laws: As blockchain technology is used for storing data, it is important for companies to comply with data privacy laws such as the

General Data Protection Regulation (GDPR) in the European Union.

Smart contracts regulations: Smart contracts, which are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code, also fall under scrutiny and regulations.

Given that the crypto & blockchain industry is still at early stage the surrounding laws and regulations are constantly evolving and it is essential to stay informed of updates and changes in order to comply with them.

5. Potential risks

Cryptocurrencies and blockchain technology can bring several potential risks to a company.

Security risks: Cryptocurrencies and blockchain transactions are vulnerable to hacking, fraud, and other types of cyber attacks, which can lead to financial losses for the company.

Compliance risks: Cryptocurrencies and blockchain technology are still largely unregulated, and companies may not be fully aware of the legal and compliance requirements related to their use.

Volatility risks: The value of cryptocurrencies can be highly volatile, which can lead to significant financial losses for a company if they are holding a significant amount of cryptocurrency assets.

Source: CoinMarketCap.com

Operational risks: Implementing and using blockchain technology can be complex and may require significant resources and expertise, which can lead to operational challenges and disruptions for a company.

Reputational risks: Companies that are associated with cryptocurrencies and blockchain technology may be perceived as risky or untrustworthy by some customers, investors, and partners.

6. Dynamics of the early industry

The early cryptocurrency and blockchain industry sometimes feel like Wild West and has several key dynamics that members of the board of directors should be aware of.

High volatility in prices, as the market is still relatively new and uncertain.

A high degree of speculation, as many investors buy cryptocurrencies in the hopes of making a quick profit.

A lack of regulation, which has led to a Wild West atmosphere and a lack of protection for investors.

Innovation and experimentation, as many companies and individuals are working to find new use cases for blockchain technology.

Heavy competition, as there are many different cryptocurrencies and blockchain projects vying for market share.

High growth potential, as the technology is still in its early stages and has the potential to disrupt a wide range of industries.

High speed of technological changes with new crypto currencies and different blockchain versions coming up every now and then.

Finally, it's worth noting that while the crypto-currencies and blockchain industry is still in its early stages, regulations and institutional involvement have been increasing which may change the dynamics of the industry.

https://FrankSchwabSpeaks.com

Credits:

Some icons are created by Freepik – Flaticon, https://www.flaticon.com

Presentation is supported by Microsoft Powerpoint, http://www.Microsoft.com

Some text is supported by ChatGTP, http://chat.openai.com

Some pics are supported by Craiyon, https://www.craiyon.com

Some pics are based on CoinMarketCap, https://CoinMarketCap.com

Published in crypto, cryptocurrency, cryptocurrencies, blockchain, technology, BoD, 6-themes-members-of-the-board-of-directors-should-know-about-the-crypto-currency-&-blockchain-industry on 25.01.2023 17:48 Uhr. 0 comments • Comment here

8 key considerations for Board of Directors on Artificial Intelligence in Banking

Summary: There are several key considerations for boards of directors when it comes to artificial intelligence (AI) in the banking industry. Eight of the most important ones include integrated into business strategy, established governance and oversight, well-trained talent & skills, legal & regulatory compliance, data privacy, ethical considerations, risk management and transparency.

1) Business strategy: Boards should consider how AI can be used to support the bank's business strategy and goals, and how it can be integrated into existing processes and systems, like customer service chatbots, fraud detection, credit risk assessment or personalized service offering

2) Governance and oversight: Banking Boards should establish clear governance structures and processes to oversee the development and deployment of AI, including defining roles and responsibilities, setting performance metrics, and establishing risk management procedures. Given the dynamics of AI and the need for constant calibration and validation of AI models boards need to establish a frequent model oversight process.

3) Talent and skills: AI requires specialized skills and knowledge, and boards should ensure that the bank has the necessary talent and resources trained in both banking and AI to develop and implement AI initiatives.

4) Legal and regulatory compliance: It is important for the board to ensure that the use of AI in the banking industry complies with all relevant laws and regulations. This includes data protection laws, consumer protection laws, digital operational resilience act, and any other laws that may be relevant to the use of AI in the banking industry.

5) Data and data privacy: The use of AI in the banking industry often involves the collection and processing of large amounts of sensitive data. The board should consider how this data is collected, stored, and used, and ensure that appropriate measures are in place to protect the privacy of customers and other stakeholders. All AI models are dependent on high quality data. There is the risk of garbage in, garbage out. Therefore, boards must provide framework conditions that ensure robust and high data quality.

6) Ethical considerations: The use of AI in the banking industry can raise ethical concerns, such as the potential for bias in decision-making or the impact on employment. The board should consider these ethical concerns and ensure that the use of AI is consistent with the values and mission of the organization.

7) Risk management: The use of AI can introduce new risks to the banking industry, such as the risk of biased decision-making or the risk of data breaches. The board should consider these risks and ensure that appropriate measures are in place to mitigate them.

8) Transparency: It is important for the board to be transparent about the use of AI in the banking industry and to ensure that customers and other stakeholders are informed about how AI is being used. This may include providing information about how decisions are made and what data is being collected and used.

Finally, AI training for board members is recommended to make them knowledgable about the concepts, methods, needs, challenges and risks.

https://FrankSchwabSpeaks.com

Published in board, boardofdirectors, governance, AI, artificialintelligence, 8-key-considerations-for-Board-of-Directors-on-Artificial-Intelligence-in-Banking on 31.12.2022 11:16 Uhr. 0 comments • Comment here