New regulations and implications


This online resource is focused on the drivers and options for moving to an enterprise architecture to support both finance and risk. Over the last few years, there has been a rethink in some financial services firms regarding the way they address these disciplines. That rethink has largely been due to a never-ending stream of regulatory requirements. These can – and usually are – met with tactical solutions but such is their number and frequency that more and more organisations have been persuaded to adopt a strategic approach instead.


Regulations: a strategic approach


The ever more complex and burdensome nature of regulatory requirements, post- financial crisis, has forced financial institutions to look far more strategically at their risk management. The fines and capital requirements alone have focused minds. One aspect of this has been the need to crunch much more data, often in real-time or quasi real-time rather than in batch. Another has been a focus on the accuracy of that data. There was previously talk of the data being used to more ably manage the business but this tended to be seen as a knock-on benefit rather than the end-goal. In fact, events have shown that the ‘knock-on’ benefit was actually rather important, best illustrated by those banks that spectacularly failed to manage their exposures when the financial crisis hit. The regulators themselves have woken up to this fact and are bearing down on


banks, brandishing sticks and egged on by governments keen to be seen to be doing something. This time around, there will be much greater emphasis on demonstrating the robustness of the models and architecture, and their use by the business, rather than merely complying with the letter of the regulations. The same sort of requirement is now coming from the investment community, which is becoming much more demanding in its scrutiny of banks and hedge funds. The aim of this report is not to look at the regulations or the drivers per se (Basel II,


Basel III, SOX, IFRS, Dodd-Frank, EMIR etc), as these are well understood and there is plenty of coverage in other sources. Instead, the report looks at how financial services firms can react to them and at some of the third party offerings that might underpin the response. Those moving to a strategic approach are showing something of a consensus of opinion when it comes to route, techniques and types of tools. This is not to say that one size fits all, or that there is a right and wrong way to proceed: there are some key choices to be made in each area. There is also a lot of discussion and uncertainty when it comes to what needs to be done in real-time and what does not. ‘No one is standing up and defining what real-time risk management is,’ said Mikael Sorboen, head of risk systems at BNP Paribas, at an event in September 2014. This report looks at the choices and identifies the directions taken by some of the pioneers. Some of the building blocks for the new architecture were already available within


the market, others have emerged of late, others still are on the way. Some stem from mainstream suppliers, others from specialists. Some of the change


is centred on technology, including those that allow the manipulation and calculation of huge amounts of data. It is also to do with organisational and cultural change, and with processes and data, particularly given the need for risk management to actually influence the business decisions, probably on an intraday basis, if not real-time. The projects are multi-dimensional and multi-year (at BNP Paribas, for instance, it took six to eight months just to gain internal consensus for what was meant by real-time risk management) and there needs to be a balance between meeting the fixed regulatory deadlines, short-term gains and putting in place a long-term catch-all solution. All of the banks highlighted in this report are still on the journey and it is debatable whether there is ever a moment when an institution can sit back and state that its strategic risk and finance architecture is complete. They will always need to evolve as


Risk Management Systems & Suppliers Report | www.ibsintelligence.com 5


market overview


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