Big Data Enters Risk Management Lexicon

Terry Flanagan

The traditional top-down approach to enterprise risk management is being revisited as a result of the credit crisis and the ensuing market upheavals, causing firms to look for a more holistic approach employing Big Data analytics.

The new approach, termed “collaborative risk management,” promotes information sharing, consistency of risk metrics, and linkage between front, middle and back office.

“The collaborative approach breaks down traditional silos of risk, compliance and finance,” said Thierry Truche, head of product management at Misys Global Risk.

Data integration and information visualization are key enablers for collaboration.

“When you aggregate risk information at the enterprise level, you risk losing key details,” Truche said. “You need to be able to coordinate, control and manager risk from every part of the organization, from the CEO to the individual trader, in order to make proactive decisions based on risk intelligence.”

Creating a consistent and timely view of global exposure for all risk categories is a challenge, “especially where financial institutions operate across multiple trading systems,” said Truche. “Firms are being pressured to improve transparency and produce reports an intraday or real-time basis.”

Misys, a provider of risk management software, has created Misys Global Risk (MGR), which enables collaborative risk management including limits management, credit and counterparty risk, market risk, and asset and liabilities (ALM) management, as well as regulatory reporting to comply with Basel III.

The need to address highly complex Basel III requirements related to derivatives is being addressed by a partnership between Xenomorph and Numerix, which combines Xenomorph’s data management and Numerix’s risk analytics for derivatives valuations.

Through the partnership, users of Numerix Portfolio, a front-office application for pricing and hedging complex OTC portfolios, have access to Xenomorph’s TimeScape analytics and data management system.

TimeScape streamlines the capture, cleansing, storage, integration, analysis and distribution of complex market data and risk statistics for all current and future asset classes managed within Numerix Portfolio.

Integrating the two technologies combines Numerix Portfolio’s ability to provide uniform pricing and risk for any kind of OTC derivative with TimeScape’s data model.

“With Numerix, users have the ability to consolidate trades and positions from multiple source systems on to a single platform,” said Steven O’Hanlon, president and chief operating Officer of Numerix, in a statement. “Together with Xenomorph’s applications for data management and normalization, it can deliver a powerful technology for complete analytics and data management.”

Collaborative risk management, said Truche, comprises integration and transparency.

Integration refers to “consolidating risk positions from connected modules onto a single interactive dashboard for chief risk officers and a customized dashboard for risk managers,” Truche said.

Transparency refers to the ability to drill down to any level of granularity and analyze and act on information in real time.

“There needs to be much more interactivity between senior management and the risk function,” said Truche. “The time frame for making decisions has been reduced by macro factors, such as the sovereign debt crisis.”

MGR seeks to “bring a consolidated view of all risk exposure from both the trading and banking books together under one simplified view,” said Truche. Technology, in the form of Big Data analytics and visualization, helps us to provide that level of interactivity.”

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