Real-time risk management essential
25 July 2011 London
Image: Shutterstock
New risk management research, published by Lepus and commissioned by SAS, has found that while global investment banks are at different stages in the move to near real-time risk management, they all agree that the ability to aggregate global data and take snapshots of their risk position is essential not only to react to extreme scenarios but also for risk events that occur every day.
Further to the European Banking Authority (EBA) putting in place more stringent stress tests and the Basel Committee modifying its Internal Model Approach, the banks interviewed highlighted the need to give decision-makers the ability to review their risk profile and make quick assessments to protect or decrease their exposure as the market evolves.
Alongside supporting regulatory compliance, the report found that near real-time risk management allowed firms to understand their risk position throughout the day and undertake more and/or greater trading positions across complex assets with more confidence.
However, the report also found moving to a near real-time risk monitoring environment remains a challenge for firms to realise. Key issues to overcome include data quality and accessibility - often the risk data is duplicated centrally away from the books and records in order to be able to run analytics on it, which requires strong reconciliation programs.
The report concludes that while banks have reacted strongly in the face of the financial crisis and have the risk appetite framework to move forward to address the future demands of regulators; technology now needs to step forward to meet those demands.
Geoff Kates, Managing Director, Lepus, commented: “Most traders can access their risk information at trade and book level on a real-time or near real-time basis but it is the risk management oversight that requires an aggregated view of the portfolio, divisional, regional and global levels. Current trends require a solution where actions are consistent with business strategies and an enterprise–wide view of all operations, rather than a siloed approach to risk management.”
Dale Stevens, Head of Capital Markets, SAS UK, added: “It’s clear that an overhaul of technology is necessary as financial institutions start to implement more sophisticated risk mitigation solutions and approaches. However, such an overhaul should not have to mean a replacement or upgrade to existing systems, but rather a universal platform that connects throughout the bank, interrogating all the necessary data on demand, and using the latest high speed technology.”
Further to the European Banking Authority (EBA) putting in place more stringent stress tests and the Basel Committee modifying its Internal Model Approach, the banks interviewed highlighted the need to give decision-makers the ability to review their risk profile and make quick assessments to protect or decrease their exposure as the market evolves.
Alongside supporting regulatory compliance, the report found that near real-time risk management allowed firms to understand their risk position throughout the day and undertake more and/or greater trading positions across complex assets with more confidence.
However, the report also found moving to a near real-time risk monitoring environment remains a challenge for firms to realise. Key issues to overcome include data quality and accessibility - often the risk data is duplicated centrally away from the books and records in order to be able to run analytics on it, which requires strong reconciliation programs.
The report concludes that while banks have reacted strongly in the face of the financial crisis and have the risk appetite framework to move forward to address the future demands of regulators; technology now needs to step forward to meet those demands.
Geoff Kates, Managing Director, Lepus, commented: “Most traders can access their risk information at trade and book level on a real-time or near real-time basis but it is the risk management oversight that requires an aggregated view of the portfolio, divisional, regional and global levels. Current trends require a solution where actions are consistent with business strategies and an enterprise–wide view of all operations, rather than a siloed approach to risk management.”
Dale Stevens, Head of Capital Markets, SAS UK, added: “It’s clear that an overhaul of technology is necessary as financial institutions start to implement more sophisticated risk mitigation solutions and approaches. However, such an overhaul should not have to mean a replacement or upgrade to existing systems, but rather a universal platform that connects throughout the bank, interrogating all the necessary data on demand, and using the latest high speed technology.”
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