Financial Risk Systems — So Nineties. Why Are They Back?

September 7, 2012 7:14 am 0 comments Views:

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SAS is getting Requests for Proposals (RFPs) for risk, said David Rogers, global product marketing manager for risk at the high end analytics firm. Here I thought the market had been saturated ages ago.

“A number of firms have re-issued RFPs for liquidity risk for both regulatory reporting and non-regulatory activities. Some larger firms are looking for fully enterprise level liquidity management, putting in place a phased program which starts with data management.”

He thinks some firms have found that tactical approaches  — doing just enough to meet the reporting requirements — have not been sufficient for increasing regulatory demands or the needs of internal business users.

Apparently risk wasn’t entirely solved during the 1980s and 1990s when big systems went into banks from Algorithmics, SunGard and other major players. SAS recently ranked in the upper right quad of a Chartis report on risk systems, along with Algorithmics, now part of IBM; Moody’s analytics; SunGard and Oracle.

An Austrian bank took the tactical approach to create reports from existing infrastructure, Rogers said by way of example.

“But tactical can mean not necessarily considering all the elements you need. You meet the reporting for your regulator, but you don’t have the long term infrastructure to extend those reports to areas you really want to work on for stress tests, capital planning or overall risk management reporting.”

Risk is a moving target, and not a particularly fast-moving target, in banking today, he said. Small and medium size banks which don’t deal in a lot of exotic products have a lead over Tier 1 banks in being able to implement comprehensive enterprise systems.

Risk is moving to real-time in trading limits and some other areas, but overall risk is still mostly end of day batch processing and pulls from multiple sources of data.

“This is an opportunity to look at the whole risk architecture and make fundamental decisions to re-engineer and re-tool and consider where information is locked into a risk analytics view where a bank wants a more business-centric view to make risk part of the business process.”

The finance industry has experienced some restructuring — withdrawing from certain types of business or spinning off parts of the organization — RBS is separating its insurance business from its banking,  ING has had to divide its operations while ABN has been reinvented as a regional, rather than a global bank.

“I think we are in a transitional phase,” Rogers added. “We see some banks conducting analysis of what other firms have. Rather than adding to their risk architectures on a regular basis, some are withdrawing from certain activities and have consolidated to a degree.”

This is also an opportunity to rationalize systems, especially in firms that have grown through mergers and acquisitions and now have three or four treasury systems, for example. Often banks are using spreadsheets as intermediate steps to link information from disparate systems.

“We have seen scenarios where there are shells around shells, and banks will just live with that rather than risk detaching something they don’t fully know.” In other cases a department wants to protect a system and a process that it understands and which delivers results the way it wants, even if it doesn’t fit into an enterprise architecture.

Rather than undertaking a major push, firms seem content to re-use previous technology investments while trying to improve the timeliness and quality of the data and improving the integration with other risk management tools.

By Tom Groenfeldt, EPM Contributor, from:

I write about finance and technology, which can range from supercomputers to iPhones and iPads, which have made inroads into enterprise computing in the last year. It’s a fast-moving world with just a bit of hype, so figuring out what’s real is a challenge, and spotting emerging trends is a feat that often comes from listening and deciphering themes amidst the chatter. For a change of pace I turn to photography — I like shooting on the streets of New York, and when I am home in Wisconsin, I turn to our dogs for inspiration, as you can see on Facebook.


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