The future will be digital; the past several pandemic years have shown that the shift to digital is happening even faster than expected. A McKinsey global survey found that companies’ digital offerings and adoption accelerated by six to 10 years as a result of the crisis.
This has led the way for the next generation to take advantage of digital tools as a way to invest, grow and experiment with new currencies. With the rise of digital assets like cryptocurrencies, NFTs and digital real estate in the metaverse, extreme disruption in this space is giving way to a new paradigm of risk. Specifically, governing bodies can’t yet keep pace, so in the near-term, how does the digital community govern itself?
Here are three predictions for the future of compliance in a super-digital world:
Individuals will have a lot more responsibility for their own safety.
One of the most striking observations I’ve made over the past several years is how quickly consumers’ behavior has changed about their assets and investments. With the rise of neobanks and consumer-friendly tools like Robinhood and Coinbase, anybody can invest in a new way, trade stocks and handle cryptocurrencies—and it’s so easy, trading is like a game
With bigger risks come bigger rewards. But new territory also brings the potential for bigger losses, with little protection in the form of regulatory oversight. Smart investors can take advantage of the disruption and multiply their investments—these are the retail investing stories one can read about focused on big gains on a meme stock or an early adopter’s NFT collection now worth millions.
Beware of the dangers of taking big risks in markets where regulation is still in the early stages. It will be years before regulators can catch up to the disruption happening in rapidly evolving digital spaces like cryptos, gaming and the metaverse. In the meantime, the task of governance falls on the individual, as well as on provider communities that have to come together to grow responsibly.
Risk management will be embedded into fintech products by design.
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 correlation between growth and responsibility will not change. The basic steps of risk management will not change.
Instead, watch for how quickly risks happen—and how quickly counteractions must be taken to mitigate the risk. For example, hot investments can grow exponentially or tank in a matter of hours, not days. The cost of digital real estate in the metaverse can quickly rise from three cents to six dollars.
Because change is rapid and risk happens in digital spaces, I predict that the products we use to navigate these spaces will have governance, risk and compliance functions built in. Instead of “post-facto” assurance, preventative and alerting functions will be built into the product by design. We are already seeing banks where regulatory, cyber, audit and operational risk frameworks are built into the core products and automated processes that these fintech organizations are adopting.
AI and blockchain are the next evolution of risk.
Blockchain technology has evolved rapidly over the past decade. 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 embedded into the process of audit, risk and compliance.
The nature of blockchain frameworks encodes smarter, decentralized 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 organizations and regulators could benefit from immutably tracking action and adherence. This goes back to my earlier point on GRC by design that will get incorporated increasingly in the transformative design of products and processes.
These predictions, all together, make the future very exciting from a consumer standpoint. 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 digitization, disruption and technology and its applications—while exhilarating at times—comes with big doses of risk, even when the rules governing that risk have yet to be written. Organizations, regulatory bodies, industry watchdogs and consumers have to ensure that they work collaboratively to balance growth and responsibility.
Courtesy- https://www.forbes.com/sites/forbestechcouncil/2022/04/21/three-predictions-for-the-future-of-compliance-in-a-super-digital-world/?sh=6abe0edc7387