Following the signing of a partnership agreement with derivatives analytics vendor Fincad at the start of this year, SAS has been steadily investing in its overall risk solution set over the course of the last five months, including adding more credit scoring capabilities to its SAS Risk Management for Banking. David Rogers, SAS global product marketing manager for risk, elaborates on the vendor’s plans to invest further in its high performance risk capabilities, data integration via vendor partnerships and governance, risk and compliance (GRC) functionality over the rest of 2010.
SAS’s development plans have been determined by market feedback and research, including the results of a recent survey conducted in cooperation with the Economist Intelligence Unit (EIU), says Rogers. The vendor has produced a survey of risk management practices every year for the last five years and this year’s was targeted at assessing the impact of the credit crisis on the overall risk function. To this end, the survey involved 346 senior risk management executives in the financial services industry and was conducted during the month of February this year.
“The research gives us a good sense of the changes that are going on across the market in the way that firms view and use their risk management function,” explains Rogers. “It also provides an opportunity to confirm some of the anecdotal evidence we hear from our customers.”
One such finding this year, says Rogers, was the importance being placed by firms on the strategic nature of risk management. Rather than a box ticking exercise, risk data is being used to inform business decisions and therefore needs to be a much more integrated part of a firm’s overall operations. This is why SAS has opted to strengthen its relationships with a number of data warehouse vendors in the market, including long time partner Teradata.
Risk management and the risk data produced was previously a function of financial institutions’ business rather than a key input into a firm’s overall strategy, says Rogers. “Now there is a focus on improving risk management as a service to the rest of the business to help the senior management set the firm’s risk appetite and understand its overall risk profile,” he elaborates. “This entails a degree of data integration across all of a firm’s various siloed risk systems.”
Silo-based approaches to risk management still plague financial institutions and fewer than half of respondents to the survey said they understand how risks interact across business lines. Poor department communication hampers effective risk management and SAS indicates that many institutions need to strengthen risk management programmes to meet more diverse and frequent reporting requirements from the board. Only 47% of respondents to the survey said they could provide timely and relevant risk reports to their boards.
Moreover, only 39% of respondents to the EIU survey indicates that they are effectively collecting, storing and aggregating data. Four out of five companies surveyed were therefore increasing their investment in data quality and integrity. Over-reliance on risk models and problems with data that populate those models are judged as key failures in financial risk management, according to respondents.
The focus of the partnership with Teradata, which has been ongoing for the last three years, is therefore on improving the data flow from the risk function to the rest of the business, including to senior management. Rogers indicates that the data must be timely and accurate but it must also be “consumable” by these business users, namely it must suit the business context and be relevant to their needs.
Downstream data consumption has become a key area of focus across the data management community in general over the last couple of years. Reference Data Review research conducted last year also highlighted the interoperability and integration between downstream systems and centralised data management systems as a key area of concern for market participants. A total of 71% of respondents to a reader poll in July last year indicated that they believed formal working groups should be established in order to better tackle the issue of downstream data.
For SAS, this has meant an investment in its SAS Risk Management for Banking solution, which was completed at the end of last year and has since been implemented by a number of Nordic banks. The next area of improvement is in the credit risk space by adding more credit scoring capabilities, adds Rogers. The vendor is looking to bring the credit scoring function as close as possible to the data warehouse in cooperation with Teradata in order to enable firms to make better use of the available data.
SAS will also be looking to a number of other, as yet unidentified, database and data warehousing vendors to partner in the future, adds Rogers.
The time horizons for risk data have also become much shorter, as firms need the data much quicker in order to make wise business decisions. It is this issue of timeliness and the ability to do more risk analytics that is also driving SAS to look at the area of high performance risk, notes Rogers. “This is to support complex risk calculations in a faster environment overall,” he says.
The survey also indicated that the current regulatory push in the risk space might in fact be detracting firms’ attention from realising the business benefits of risk management, says Rogers. The demands of regulatory compliance such as the move to Basel III could eclipse a risk manager’s focus on day to day risk management, contends the vendor. Complacency in the risk space also remains a danger in the long term, he adds
However, a more integrated approach to the GRC challenge is an area of future development for SAS this year and into next, as it seeks to provide firms with solution architectures that facilitate the management of all three areas. Governance, risk management and compliance functions are all closely linked within firms but this is not necessarily reflected by their infrastructure and technology capabilities and SAS is keen to carve a niche out for itself in this rather competitive corner of the market.
At the end of last year, SAS also partnered with institutional broker and software vendor Concept Capital to launch a new hosted portfolio analytics and risk management solution for the hedge fund sector. Concept Capital was then enabled to extend the risk management capabilities of its flagship solution Conceptone.