In today’s highly regulated environment, many organisations are being adversely impacted with the increasing regulatory burden depleting their economic capital. For every pound spent on regulation, there is a direct reduction in the amount of capital available for the front office to generate an economic return.
Historically risk, compliance and regulation have always been key drivers in terms of defining budgets. This has resulted in organizations making significant investments in governance only to have a ROI based on ticking the regulatory box. This is no longer sustainable.
In today’s post credit crisis environment, of higher capital costs and lower leverage, it’s time to implement an integrated risk management framework for a new era of strategic business needs and competitive advantage. To succeed in this new environment, risk management has emerged from the back and middle office as a new form of competitive advantage, tying the outcomes of risk management directly to strategic business outcomes such as driving product innovation, increased operational efficiency and intelligent risk reporting to name but a few.
Strategy
Successful organisations need to look beyond regulation and view risk management as a strategic element of their value chain in order to deliver sustainable growth and innovation. This can only be achieved by taking a holistic view across multiple and sometimes disparate business silos, to maximise the use of capital and leveraging data as an asset to drive greater economic returns.
Complexity
Financial institutions need to be able to look at different markets, customers and product lines in a more sophisticated manner. Regulators have woken up to the fact that technology can be deployed to collect the right information to improve financial accountability, surveillance and integrity. Coupled with an increasing regime of legislative control, a new level of regulatory burden is shaping how organisations respond to a new complex landscape.
Underpinning this is the need for information based on more than just a finance or process perspective but deep risk management. Organisations require new risk management capabilities to support real time scenario planning and risk mitigation. This can be achieved through agile, effective and efficient technology architecture.
Shared Solution Architecture
Many organisations have grown through aggressive growth and acquisition with the consequence being that their technology real estate has become bloated, costly and highly fragmented. This technology footprint will often consist of many 100s of systems, many of them overlapping and duplicated, such as multiple loan, securities and risk management platforms.
What is required is a shared solution, across all business silos, that leverages the latest technology, where amendments can be made to make compliance desirable not feared. This can be achieved through the harmonization of technology and consolidating vendor applications in areas such as data warehousing, trade entry, risk calculation engines and business intelligence reporting environments. This will make significant positive contributions to risk management with more flexible risk reporting, faster risk engines, extended asset coverage and more timely market data.
Competitive Advantage
The increasing pressures on margins coupled with the high cost of technology and burgeoning regulation means that firms are searching for competitive differentiation by moving from compliance to performance and adopting more effective and efficient risk management practices.
Technology is playing a key role as an enabler for this transformation, driving demand for new architectures and high-performance computing. To win in the marketplace, organisations must out-innovate and out-execute, and that means moving faster, being more accessible to clients, launching new products and pricing more effectively. Technology rather than people will be at the forefront to drive risk management as a new form of competitive advantage.
IAN ALDERTON
Email : ian@IanAlderton.com
Tel : +44 (0) 7702 777770
