02.18.2015

Technology Underpins Risk Management

02.18.2015
Terry Flanagan

Information technology, by helping to identify and address risk issues, can be a powerful weapon in the risk management arsenal.

“It gets back to the speed issue. It also gets to the data issue,” said John Grace, chief risk officer at OCC, the world’s largest equity-derivatives clearing organization. “We have to have a broad view of what might happen. What are some of the early indicators? Are we prepared to act, to recognize and act on those early indicators? If you go back to the days of sailing ships, it was what were the best sails and the best ropes. You want the best tools to be able to manage what we have to manage and do our jobs properly.”

Financial institutions continue to dominate demand for risk technology solutions, despite tightening their overall IT budgets. Risk IT spending continues to increase within these budgets, taking larger shares of the available funding – demonstrating the continued focus on risk management, according to a report by Chartis, a provider of research and analysis covering the global market for risk management technology.

“Over the last twelve months, integrated risk management has emerged as a central theme for many of the companies we’ve spoken to, with leading financial and non-financial firms looking to combine their risk and compliance capabilities across multiple risk classes,” said Peyman Mestchian, managing partner at Chartis.

Often the motivation is to reduce cost and/or complexity. “’Risk and compliance simplification’ is a common term that we hear from CROs, but the ultimate benefit is better risk management,” said Mestchian. “Consistent taxonomies, methodologies and systems drive better decision-making and better alignment to board-level risk appetite.”

The market for risk technology is staggered in terms of maturity; banks and capital markets have traditionally been leaders in risk technology investment, and therefore have the most mature technology solutions.

The increased speed and volume of transactions have led to exponential growth of the ‘three Vs’ of data (volume, variety, velocity), and firms must process and respond to this data quickly to tackle risks and seize market opportunities, according to Chartis.

The 2012 Basel Committee document (BCBS-239) “Principles for effective risk data aggregation and risk reporting,” is frequently referred to as an industry guideline and can be used for baseline capability measurement for a range of risk reporting activities.

Covering a wide variety of topics and instances, the guidance relates to four interconnected areas: overarching governance and infrastructure: risk data aggregation capabilities; risk reporting practices; and supervisory review, tools and cooperation.

Chartis predicts that, in due course, these requirements and standards will trickle down from Tier 1 global institutions to Tier 2 firms, although the levels of complexity will always be higher for the larger firms. This will be a core area of research for Chartis in 2015.

Featured image via mickyso/Dollar Photo Club

Related articles

  1. Richard Turner of Insight Investment sees more automation and more transparency around cost and outcomes.

  2. The suite enables GAM to seamlessly manage market risk exposure and liquidity and investment risk.

  3. Asset manager anticipates an SEC decision on converting its fund to a spot bitcoin ETF by early July.

  4. Fidelity continues to hire thousands to support cryptocurrency.

  5. Tradeweb Draws Buy Side in Europe

    Net sales registered net outflows of €3bn, compared to €42bn in March 2022.