A New Generation of Risk Management System for Global FinTech Enterprises

Abstract

Recently, numerous FinTech enterprises have been expanded their business out of their traditional areas and such activities will continue and last for years. Their aggressive investments generate large amounts of revenue while bringing different kinds of risks that are inherent to these business areas. In addition, it is a big challenge to coordinate resource allocations and decision makings at both corporate and division levels of FinTech enterprises under complex external environments of different countries while considering differences in business models of various business divisions. Unfortunately, the risk management framework available to date still have obvious shortcomings in their scienticity and integrity for FinTech enterprises. In this dissertation, we propose a new generation of model framework assisting global FinTech enterprises to make decisions systematically in business investment and risk management by identifying the optimal capital allocation strategy that robustly maximizes risk-adjusted returns to stakeholders.

We first present the general structure of the designed system, which comprises of three components: scenario generator, business models, and policy optimizer. Then we introduce our stylized implementations of each of these components: the scenario generator generates plausible macro and micro scenarios via a systematic approach; the business models characterize cash flows among different entities within the firm and between the business divisions and external environments; the policy optimizer proposes candidate policies for both the headquarter and business divisions given economic scenarios and renders recommendations on investment decisions to stakeholders based on simulation results. Before we conclude and point out directions for future research, we devote a full chapter to numerical simulations for a stylized global multi-divisional FinTech enterprise to illustrate the working mechanism of our proposed system.