Aite Group study suggests technology will play a vital role in risk management

Digitisation of risk technology will be a key factor in monitoring and risk management in periods of increased market volatility, a study by global research and advisory firm, Aite Group, and provider of post-trade processing and risk management, Torstone Technology suggests.

The study is backed by extensive research and interviews with leading global banks and industry practitioners. It describes a number of risk management trends shaped by the recent wave of volatility, new regulatory obligations, expanding volumes of data and changing market structure, impacting sell-side institutions.

The paper calls attention to the need for risk systems able to withstand market turbulence, especially as the industry is dealing with the ongoing uncertainty caused by the global pandemic. The study indicates that the use of cloud-based technology is increasing in risk management and will consequently influence changes within organisational structures. It also shows an increasing need for the sell-side to identify synergies in the regulations and optimise the use of data, lowering costs in the long run.

Anthony Pereira, Head of Torstone’s Risk Platform, noted:

Anthony Pereira

In rapidly changing global markets, risk teams need technology that provides real-time oversight and the capability to answer new questions not captured in their daily batch reports. This comes while operational and compliance costs continue to increase for the industry, putting ever-greater pressures on the firms already operating in a challenging environment characterised by thin margins.

With new regulations such as FRTB in sight, sell-side firms that have invested in upgrading their risk systems will have a clear advantage over those who have not. Reviewing the existing inefficiencies and identifying areas for improvement would be a key first step. Always-on, centralised, cloud-based risk technology that is scalable in times of volatility is the foundation for robust risk management in the years to come.

Audrey Blater, senior analyst at Aite Group said:

Audrey Blater

The boundaries of existing risk management technology are being tested more intensely now than ever before. Ongoing market volatility necessitates rigorous calculations as well as increased data management and consumption. The shift to digitalization will continue to find its way into various parts of banks as technology creates common threads across business areas.

The study discovered that AI and machine learning will be slow to develop in risk management, even though ultimately this technology will enhance chief risk officers’ toolbox and analytics capabilities. Due to its computing-intensive nature, risk analytics is a focus area for more scalable technologies, like cloud, the study suggests. It also predicts that hosted deployment will continue to replace on-premises risk systems as cloud-native solutions become commonplace.

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