There is a gradual change going on across the industry from considering compliance with the Basel framework as a box ticking exercise to using these underlying risk management practices as an opportunity to more intelligently allocate capital, conduct profitability analyses and make better business decisions, according to Andi Hug, general manager for SunGard’s Ambit Risk and Performance Management business unit. Hug’s particular unit largely focuses on tier two and three institutions looking for solutions to meet their risk management requirements and he notes that the integration of the middle and back office functions with the risk function is key to success in this endeavour.
“There is a new business imperative to improve liquidity management and mitigate operational risk via a more integrated framework for capital management,” he explains. This is why strategic investment in risk management solutions such as those offered by SunGard and its competitors is happening with more frequency. It is not just about compliance, it is about managing a firm’s business in a more joined up manner.
Firms are seeking out greater integration between back office and compliance functions with traditionally front office focused risk management functions. This is to enable firms to approach setting desk level risk limits, for example, with much more information at hand.
Moreover, although regulators have been less aggressive than expected in taking enforcement action, liquidity risk management also remains on the agenda, according to Hug. “There may be a conception amongst medium sized banks that the problem has gone away, but it hasn’t fallen off the regulators’ radar,” he says. “I expect much more investment in the space going forward, as regulators move to take enforcement action.”
Hug is not alone in making this judgement, SAS marketing manager for Financial Services Duncan Ash is also convinced the market for these solutions will witness an uptick, as regulators get on the same page as each other in light of Basel III.
In order to ensure it is keeping ahead of the competition, SunGard is adding strategic partnerships to its roster, including a partnership with complex event processing (CEP) vendor Streambase, signed earlier this year. For now though, Hug reckons that in spite of the M&A activity going on in the risk management solution space, most of the competition has yet to properly integrate the functions of the boutique vendors they have recently acquired.