Marcus Cree, director of risk solutions for SunGard’s capital markets and investment banking business, said, “Regulators, investors and managers have changed their view of how financial institutions need to be run and how the markets need to be controlled. They demand more disclosure, improved risk management and more capital control. To achieve this, firms need a risk infrastructure that supports the ability to pinpoint their exposure, better manage capital flows and achieve a holistic view of risk across the enterprise.”
SunGard’s ten trends shaping risk management and technology in 2010 are:
1. Chief risk officers will intensify management oversight to satisfy stakeholder demand for risk transparency and expected levels of risk exposure.
2. The interdependent network of banking roles (trading, risk, management) will cause internal risk cultures to strengthen.
3. Risk and trading need to more efficiently approach and use data: they need to look at the same underlying data sets so that a risk management strategy incorporates indicators used by traders.
4. VaR measurement needs to be supported by additional measures and good risk oversight and management.
5. Measurement of the likelihood of rare events (VaR tail analysis) will be more widely adopted to help firms find catastrophic break points.
6. Stress-testing of portfolios will become an increasingly more significant contributor to risk reporting.
7. Credit default swaps highlighted a need for greater unification of market and credit risk management: credit effects should be incorporated into market stress tests to cover liquidity/crisis effect scenarios.
8. Rating-based spreads will continue to be impacted if the market continues to front-run ratings agencies in determining the credit worthiness of an institution.
9. External (investor) assessment of visible, effective risk management will directly impact firms’ ability to raise capital.
10. Regulatory pressure on risk management will remain high, as central banks and politicians manage the ‘post-crisis’ under extreme media scrutiny.
Derek Penn, managing director and head of equity sales and trading at Pershing, a company of BNY Mellon Corporation, said, “We’ve had record volumes, we’ve had record volatility, and a number of SunGard products have helped us navigate this chaotic environment. Transparency is quite important from both a management and a risk management standpoint. We can look at a SunGard terminal and determine exactly what a customer has traded.”
Bob Egan, global head of research and chief analyst at TowerGroup, said, “Greater transparency will be needed in retail credit and portfolio risk and on the institutional side, in high-volume derivatives and other complex instruments driven by institutional governance and regulations. Technology is going to play a key role in trust that is motivated by consumer and regulatory interests in the areas of risk, the need for speed and automatic compliance government programs.”
Dana Wiklund, analyst at IDC Financial Insights, said, “Risk managers need transparency to get to the truth around the effects of volatility on the organization; that is, getting the right information into the right context, so the right decisions can be made. Financial institutions are being held back due to budget constraints, communication within the organization and disparate sources of data from which to assess and truly understand risk. There needs to be an enterprise risk management process starting with establishing business objectives and the right controls that can be monitored, and then analyzing the organization vertically and horizontally to make sure those objectives are achieved. Organizing data, putting it in the right context, and making it available to the right people are crucial to achieving this.”
