Why Banks Need Real-Time Risk Visibility

During a recent panel session hosted by PRMIA, a panel of risk management experts explored why viewing risk in aggregate and real-time is crucial and how we can learn from recent market failures.

The discussion, led by Nauvin Rauniar, TCS partner and managing director, consisted of Nasdaq Risk Platform’s Head of Product Malcolm Warne, Deloitte’s Stephen Weston, a partner within Deloitte’s Risk Advisory Practice, FAB-UAE’s Managing Director and Head of Business Advisory Global Markets Drone Chowdry, and Barclays’ Head of U.S. Electronic Product Alok Agarwal.

Throughout the session, the panelists addressed several critical concerns for risk management in banking, including:

• Increasing regulatory pressure and requirements
• Addressing the need for visibility and transparency of real-time risk data
• Reducing implementation barriers and leveraging sophisticated risk management solutions

Increasing Regulatory Pressure

In recent years, the role of regulation and compliance in trading has become considerably more predominant for financial institutions. The United Kingdom has certainly led the way concerning the implementation of more stringent regulatory requirements. From MiFID II to trade and transaction reporting, new regulations have increased transparency in markets significantly.

While improving transparency has bettered the financial ecosystem, it has also raised the standard and workload for current risk managers. OTC trading did not always require a high level of regulatory reporting, but in today’s environment, it is a requirement. These higher standards have led banks to begin transitioning away from their current risk management solutions and toward a more consolidated, robust structure that can ease the haul of intraday reporting.

Visibility and Transparency

Regulatory reporting has been a key driver in the shift towards increased transparency in risk management. This has in turn created new business opportunities for which has led to some crucial innovations. There are now SaaS risk management solutions hosted in the cloud which allow firms to review their exposure in real-time. This gives banks the ability to calculate their risk and respond rapidly, enabling them to mitigate that exposure and ensure capital requirements are fulfilled throughout the day.

Despite the availability of these solutions, most risk models currently in place will look backward and replay previous events in risk management rather than predicting future issues. Malcolm Warne noted that “each major risk event is a surprise” and that effective risk management should also be forward-looking.

The solution to this retroactive approach is machine learning. Machine learning can sift through data and synthesize hidden correlations that risk managers are unaware of, rather than simply repeating prior events and hoping it is flagged the next time. This gives risk managers intraday visibility into potential risk mishaps that would be unidentifiable under many current frameworks. The financial industry’s increased acceptance of cloud hosted Risk Management technology makes Machine learning at scale much more feasible.

Implementation and Sophistication

Historically, implementing a new risk management solution involved purchasing physical hardware, waiting for it to arrive, and hopefully, beginning operations in 18 months. However, with SaaS solutions hosted in the cloud, hardware lead-time has disappeared, and the platform can be spun up immediately.

The SaaS model provides connectivity to a plethora of parties, from exchanges to market data providers, thus reducing the need for several solutions. Furthermore, these frameworks frequently offer APIs that enable customers to reuse their own analytics and models.

SaaS solutions hosted in the cloud can lower implementation time while increasing the functional breadth of the offering, which ultimately provides a more comprehensive risk management solution. They also enable rapid and frequent delivery of new functionality in response to market and regulatory changes.

Key Takeaways

Flexible and robust risk management solutions have become increasingly important for banks in the present regulatory climate but realizing the benefits of real-time risk management is far more than just compliance. SaaS solutions hosted in the cloud eliminate the proliferation of disparate spreadsheets and provide the visibility needed to prevent major financial obstacles.

Warne believes, “The cloud is where risk technology is heading, and we have the opportunity to make that a reality now more than ever before.”

To learn more about how your firm can enhance its risk strategy, watch the session below or check out the Nasdaq Risk Platform.

Other Topics

Financial Risk Management Technology

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