up’ approach, of collect the information, then tick boxes and create reports. It is better to have five page reports that everyone understands, he said, than ‘thousands of check- box reports that no one reads’. To support this, he foresaw a horizontal framework of data models and datamarts – ‘this is the era of the datamart’ – but without institutions embarking on massive data manipulation and not understanding what they want to do with the data. He pointed out that anyone who had not addressed Basel II was not going to be able to wriggle off the hook. ‘The point is that Basel III isn’t dismissing Basel II, it is building on top, so you can’t go without it.’ In fact, Onorato argued that, while Basel III was a significant improvement over Basel II, it could actually compound the silo-based approach to risk management. There are two objectives: to avoid creating bubbles – particularly credit bubbles – during boom times, and to ‘turn down the volume’ during tough times. ‘Most of all, there are business model implications, with substantial governance and organisational implications.’ The ethos that investment banks should be self-funding will have ‘deep, far-reaching business implications’. However, will Basel III really break down the decentralised IT functions that support finance, treasury, business lines and risk management? The silo approach to risk had been tremendously misleading, felt Onorato. What is needed is a significant investment in infrastructure. There has been some breaking down of silos, particularly with market and credit risk coming together in the last few years, through drivers such as the Basel-derived Incremental Risk Charge and centralised Credit Value Adjustment (CVA) desk with profit and loss responsibility. And operational risk has tended to move under the auspices of market risk. However, the underlying business systems tend to remain detached. A written response to Basel III from Algorithmics concluded: ‘As trading and


structured finance has become more spread out and complex, the corporate structure of banks has also become more complex, such that different parts of the business run their own profit and loss books. This has generally made it harder for managers at the top to have an all-encompassing view of the risks on the group’s balance sheet.’ It seems clear that many banks’ reaction to Basel II was to build enterprise data warehouses with information brought together at the reporting stage, often with manual intervention to meet the Accord’s regulatory and management reporting requirements. The warehouses were expanded to cover credit and economic capital, with separate calculations for market risk and operational risk. ‘It was an add-on, on top of an add-on, on top of an add-on,’ said Onorato. He argues that Basel III falls into the same trap, compartmentalising risk, as reflected in separate stress tests for liquidity and capital. The high-profile stress tests in the summer only focused on capital levels, not liquidity risk. ‘But the crisis came from liquidity, and some well capitalised banks went under.’ Advice from Mikael Sorboen at BNP Paribas was that banks should view all of this as a chance to simplify. They ‘need to make decisions about how to blend real-time processing with end-of-day’. The requires a lot of organisation and architecture changes. ‘It is not just adding a jet engine on the back of your current systems.’ The requirements continue to shift as more regulations emerge, so it is understandable that there are still uncertainties about the data and systems implications. Nevertheless, enough is known about the direction, while the timescales are sufficiently tight that investment and activity is needed if there is finally to be a widespread adoption of strategic data and risk solutions, plus long-awaited standards, rather than even more short-termism. This online guide looks at the issues, possible architectures and components, and then turns to some of the main suppliers of risk and financial accounting systems. Those suppliers have dedicated offerings so this guide does not include those systems that have broader functionality, such as the treasury and capital markets system suppliers (Calypso, Misys, Murex et al) and trading system suppliers, all of which are profiled in our Treasury & Capital Market Systems Market Report.


Risk Management Systems & Suppliers Report | www.ibsintelligence.com 7


market overview


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