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A-Team Data Management Summit: Regulation and Business Mix as Drivers for On-Demand Risk Analytics Development

Regulation is driving change in the financial services industry, not least in the area of risk analysis where on-demand reporting is becoming a regulatory requirement as well as a management need and potential business opportunity. In response to regulatory change, the deployment of technology is changing, but what are the outcomes and how can financial services firms deliver on both regulatory requirements and business development?

A panel moderated by A-Team Group editor-in-chief Andrew Delaney at this week’s A-Team Data Management Summit considered these issues and offered guidance on how to move towards on-demand risk analysis.

Kicking off the panel debate, independent consultant Mike Hepburn said: “It is every banker’s worst nightmare to be telling the BBC why the bank’s risk systems went wrong and the bank made a big loss. Today, end-of-day batch reports are no longer enough to manage risk. Everyone recognises this and the mindset is changing.”

Ken Tune, senior consultant at MarkLogic, added: “This is the perfect storm on the regulatory front. There are so many regulations with far-reaching requirements, but some, like Dodd-Frank, are problematic as they are not prescriptive and leave the industry to work out what must be done. At some point, government will tell firms what they must do.”

While regulation is driving many technology programmes, some firms are realising the potential of these programmes, particularly those that move more information into the front office, to support new business development.

Panel member Stuart Grant, EMEA business development manager, financial services, at SAP, said: “The front office is starting to push more value added projects. The big driver now is making workflow more cyclical, rather than purely downstream, with information moving from the front office to the middle office and back to the front office.”

Hepburn agreed, commenting: “The audience wanting on-demand information is growing and growing. Everyone on the front desk wants information and this is driving technology change.”

If that is the requirement, what are the tools to deliver the on-demand risk analysis demanded by the front-office and the business? Noting that organisations are too conservative when setting risk limits because of a lack of detailed and frequently updated information, Grant said: “People still talk about value at risk (VAR) at desk level not at trader level. We need greater granularity of data to show performance at the trader level. More granular risk analytics would be good for everyone.”

Tune added: “Understanding of risk is not complete. VAR is a well known way to calculate risk, but it is not enough. We also need to measure and manage liquidity risk and do more stress testing, which is difficult.”

Achieving an enterprise view of risk is critical to objectives such as business development and reducing risk limits to free capital for investment. Firms are working towards an enterprise view, but there are challenges to be overcome. Hepburn explained: “It is feasible to get an enterprise view of risk and the technology exists, but we are years away from true horizontal enterprise risk. Part of this time delay is caused by political problems associated with IT projects. If you take a tactical approach, no-one wants to put their name to a project, and if you propose a strategic project, it never happens.”

Hepburn’s suggestion that the enterprise view remains over the horizon was disputed by both Amir Halfon, chief technologist, global financial services, at Oracle and Xavier Bellouard, co-founder of Quartet FS. They said they had seen successful projects in this space, but only when political will was in place. Grant named three programmes he is familiar with that are working on risk architecture to alleviate the problem of information held in silos and not integrated. He added: “The technology key is not rip and replace, but to overlay technology on existing systems. This will produce results. Projects must be driven by return on investment.”

Addressing the issue of big data experienced by most technology teams, Hepburn reflected Grant’s view, saying: “Big database projects will never get off the ground. What is needed are overlay projects, perhaps virtualisation that will simplify data management.”

Preferring the term ‘one data’ to ‘big data’, Grant described the need to bring together real-time and historic data as well as structured and unstructured data for a complete and on-demand enterprise view. Tune commented on the need to be pragmatic about the definition of real-time depending on the level of data precision needed, but Grant returned to the end game, concluding: “Many firms have intra-day risk reports, but the real opportunity is in delivering on-demand information.”

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