Risky Business - Finance on Windows Autumn 2009

The events of the last eighteen months are a graphic example of what happens when financial institutions get risk management wrong. Lindsay James explores the technology that is allowing financial institutions to steer clear of any unwanted surprises.

As featured on Finance on Windows Magazine, Autumn 2009

“The importance of solid risk processes has become paramount,” said Alexander Millington, director of the trading and risk technology group at Formicary. “Financial institutions must have a complete real-time understanding of every element of the risk they are undertaking to ensure they can maintain and grow their business with the approval of the new and changing regulatory environment that they now operate in.”

To achieve this real-time understanding of risk, firms need tools, methodology, and processes in place to collect, measure, and monitor enterprise-wide risk exposure. This isn’t straightforward. Much recent turmoil points not to a failure of risk management as such, but to a lack of understanding about the discipline and how it should be applied. The financial crisis has highlighted the dangers of managing risk types in isolated silos, each with its own set of tools, applications and models. Much of the failure around risk management stemmed from the inability to have a more holistic view and understanding the interdependencies of risk across different lines of business.

 “We see the need to integrate existing systems being a top priority,” says Millington. “The ability to share information across a merged organisation or to leverage the efficiency of one particular system is going to be a technology mantra, for 2009 and beyond. Providing systems integration in an insightful, efficient way is the bedrock on which accurate and coherent data provision and analysis is built. There is little appetite, or budget, in the industry for expensive, complex and protracted wholesale system replacement projects – the panacea of ‘one system fits all’ very rarely exists. Rather, leveraging the competencies of individual systems and integrating across them delivers not only the benefits of centralised reporting and analysis, but also the ability to share efficiencies and optimisations across the organisation.”