Regulatory pressure, new regulatory models, cyber security, big data, small data, new payments platforms and standards, digital identity – there is no question the risk landscape is increasingly mottled with potholes for both traditional financial institutions and fintech startups. Potholes big enough to cause a business a serious flat tire, or at least make the ride somewhat uncomfortable.
This week I spoke at the International Auditors Conference in Sydney, Australia, sharing the stage with a friend and ex-colleague of mine, Michelle Moffatt. We took attendees on a mobile payments discovery journey – from where we are today to the new emerging voice activated platforms and forays into virtual reality payments. The message we had for the audience was simple. To effectively audit these sorts of innovations you have to be across the fundamentals of the technology and be part of the product journey – from inception to launch.
Michelle previously headed up the internal audit function at Tyro – an SME neobank/challenger bank in Australia, Michelle now holds the title of Chief Risk Officer at a fintech startup Spaceship.
Michelle has long been a practitioner and advocate of ‘agile auditing’. She, like a growing number of auditors in the fintech space, is acutely aware of the rapidly changing risk landscape, not to mention the increasing pace of change.
There is nothing worse for an organization when one agile arm (often the development side of the house) comes up against a non-agile one. This has huge implications on the traditional internal auditors role – a function which historically is only introduced at the end of the project.
However there is a growing need for more auditors like Michelle in the space. Auditors that are willing to come on the journey with the team, yet retain their independence. While this type of cultural shift will be notoriously difficult for an incumbent, there is no reason why a startup can’t adopt this approach with their internal audit function from day one. This is one more way the incumbents’ benefit of scale can be eroded by smart technology and alternative cultural thinking.
After the conference I asked Michelle for some feedback on a number of themes that cropped up throughout her presentation. Here are her high level take-away’s.
Audit processes must mirror startup processes – so agile is key
Starts ups are moving quickly so to keep pace internal audit has to mirror the way they work. Agile audit allows you to give feedback early in the product creation piece so that what matters most is taken into account.
Audit culture in startup land verses big financial institutions has fundamental differences
Starts ups are generally more nimble, flexible and have a greater need for pragmatism and commerciality. They are typically flatter structures, and easy access to key decision makers ensures audit feedback & findings are implemented faster.
On the flipside, larger organizations have the corporate support and access to resources that startups typically don’t have.
Both cultures can learn from one another, or find leverage.
Adopting a learning mindset to emerging technologies is critical to the risk and audit function in fintech
Apart from key technical skills and a base level of proficiency yourself, whatever niche you operate in, you can’t afford to sit back and not engage or understand the technologies you are auditing. This includes potential competitive technologies.
Aside from emerging technologies, you need to understand the emerging micro-cultures of the teams you are auditing. I strongly suggest internal auditors attend meet-ups in their space and network internally. It’s a constant education process with the subject matter experts. What is great about this is it builds your own sphere of influence.
What advice would you give to other auditors working at challengers/neobanks, given your time working at Tyro?
1) Don’t freak out, figure it out.
2) Have an open learning mindset
3) Go back to basics – auditing 101
4) Apply common sense, be part of the solution and trust your gut.
What is the internal auditor doing differently 5 or 10 years from now?
Much of the routine work is already being replaced by scripts, with auditors providing the valuable analysis of the results in a commercial solutions orientated way. All internal auditors will have both commercial and technology as technical skills and will be able to plug and play into any audit, any time anywhere with the freelance model on the rise.