Quantum computing: The future of risk management?

Quantum computing: The future of risk management?Technology is transforming almost every industry worldwide, enabling businesses to become faster, more efficient and increasingly globalised. Risk management is no exception; big data platforms, sophisticated analytics tools and cloud computing are just a few of the resources professionals in the sector can now draw upon to enhance their effectiveness.


However, technology is often a double-edged sword for risk managers. While digital innovation has revolutionised how people perform their jobs and boosted productivity, it’s also a rapidly evolving source of risk. Businesses must stay ahead of cybersecurity threats to prevent financial and reputational risks, as well as various operational problems.


The development of quantum computing, a new type of technology that experts are tipping for big things in the near future, means these issues are about to become even more relevant.


Let’s look at how quantum computing works, the ways in which it could be used and the potential impact on risk management functions.

What is quantum computing?

As the name suggests, quantum computing draws heavily on the theories expressed in quantum mechanics, a field that explores the unusual physical properties of atoms and subatomic particles.


Conventional computers have ‘bits’, which are the smallest unit of information on the machine. However, single bits have a binary system of value, meaning they can only exist as a 0 or 1 for storing or processing purposes.


Conversely, quantum computing uses ‘quantum bits’ or ‘qubits’ that can exist as either a 0 or a 1, both a 0 and a 1 at the same time, or almost endless possibilities of in-between values. Anyone who is familiar with the Schrödinger’s cat thought experiment might recognise the principle of something existing in two opposing states at the same time.


In theory, quantum computers should be able to process extremely complex calculations far more quickly and efficiently than existing machines. Problems that would take today’s computers hundreds or even thousands of years to complete could potentially be solved in a day.

Why is this important to risk management?

There are many possible applications for such powerful technology, and financial services firms are among those leading the pack in terms of quantum computing investment.


CME Group, Goldman Sachs, Guggenheim Partners and Royal Bank of Scotland are just some of the big-name brands attempting to gain an early edge over rivals by funnelling funds into quantum computing projects.


Marcos Lopez de Prado, a senior managing director at Guggenheim Partners, told the BBC that the new technology could analyse millions of investment scenarios and provide day-to-day tweaks of clients’ portfolios.


“We can build an optimal portfolio today, but tomorrow it won’t be optimal and needs to be rebalanced, which is expensive,” he explained.


Bill Chamberlain, a principal analyst at IBM, said quantum computing could allow organisations to provide real-time trading decision assistance that would minimise strategic risk.


“Quantum computers would be used to help firms find new ways to profit from changes in prices that happen instantaneously across markets,” he explained in an article for IBM’s Center for Applied Insights blog.

Wider business applications and challenges

The benefits of quantum computing in the banking and finance sectors are clear, but the technology could facilitate risk management across various industries.


Healthcare providers would be able to handle huge genomic datasets that enable doctors to offer personalised treatments for patients. Driverless cars could assess millions of external and internal threats in real time, while retail businesses could analyse multiple consumer purchasing scenarios and streamline marketing campaigns. The possibilities are endless.


However, with these opportunities also comes challenges, and quantum computing raises serious questions about an issue with which many risk managers already struggle – cybersecurity.


The ability to solve complex calculations and encryptions quickly means criminals could misuse the technology to crack existing security measures with ease. Mr Lopez de Prado believes these problems may have catastrophic repercussions for financial services firms and the wider economy if everyone’s data could be compromised this way.


“Governments could say [quantum computers] should be banned because otherwise there would be no secrets, but they can’t be un-invented. We need a new mathematical breakthrough that creates an unbreakable encryption,” he said.

Preparing for the future

Quantum computing is still in its infancy, and many existing machines are not only extremely expensive but also limited in their capabilities. Nevertheless, the potential benefits and drawbacks for risk managers are already taking shape.


The ever-evolving technology landscape means businesses will require more focus on cybersecurity moving forwards, which has a knock-on effect for risk management recruitment.


Organisations will need risk managers who have comprehensive technical skills and awareness, as well as a finger on the pulse of industry innovation. The future of quantum computing may be largely theoretical now, but the technology and cybersecurity challenges of today remain very real.


Our Market Reports combine our review of the prevailing conditions in the risk management recruitment market together with the results of our latest employer survey.


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