Risk managers lag two years behind latest technology

27 Jul 2010

Most risk management organisations lag two to three years behind in taking advantage of the latest technology – on both the business and IT sides, a survey of 5,000 professionals in Ireland, Germany and the UK has revealed.

The survey commissioned by Sybase – “Risk Management Systems in the Aftermath of the Financial Crisis” – shows that there is a great opportunity to improve risk management technology as only 32pc of risk managers feel business executives are up to date on technology.

“Most risk management organisations lag two to three years behind in taking advantage of the latest technology – on both the business and IT sides. By doing this, these firms miss out on the associated cost and efficiency benefits that come with better integrated systems,” said Stuart Grant, EMEA Business Development Manager, Financial Services, Sybase.

Furthermore, 57pc of respondents said they only update their risk management database overnight, while risk professionals largely agree many of the results they need should be available on demand.

Only 28pc run complex analysis for trades in real time, although another 32pc did the analysis intraday. For larger problems, such as portfolio and counterparty risk or global positions, most firms relied on overnight processing.

Only a few managed this in real time, while about 20pc run their portfolios, counterparty and global position calculations weekly.

“The survey results indicate that the lack of real-time data processing continues to be a challenge for risk managers,” David Greenough, publisher of risk professional magazine GARP explained.

“This calls into question the usefulness of current risk reporting systems and model analytics as global markets, products and counterparty relationships become increasingly complex.”

Issues for risk managers

The study also reveals further issues faced by risk managers: some complain they have to deal with too many different databases (24pc), another 15pc think their databases are too slow and 11pc say new features and analytics are either too time consuming or expensive.

“Data integration and integrity are keys to effective enterprise risk management. With less than 40pc of survey respondents reporting adequate system integration it appears data silos continue to be prevalent in many financial institutions,” Greenough said.

“This is a concern as the recent financial crisis uncovered significant weaknesses in aggregate risk reporting across many organisations.”

A bare majority said their middle office provides integration with multiple trading systems, while only 47pc said their middle office systems could integrate with multiple risk systems.

“By integrating systems, risk managers can reduce reconciliation efforts, cut expenses and, most importantly, operate from a single data source, leading to significant savings in data storage costs. Risk managers don’t want constant real-time reporting; rather what they need is on-demand access to information in real time,” said Grant.

More than half (63pc) of firms are now willing to increase investment in risk management technology.

“Risk management has always struggled to achieve funding although regulators may yet demand greater investment in risk management. With these factors in mind, it’s encouraging that investment is now a more recognised priority,” Grant concluded.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years