RISK EXECUTIVE SERIES
Given the vast amount of change in the OTC derivatives industry that’s taken place since the crisis, the growing list of technological demands on risk infrastructure, and the high stakes of financial and reputational loss on the line if infrastructure fails; risk managers have an immense responsibility on their plate when it comes to risk infrastructure. In the words of famed British architect Norman Foster, “As an architect, you design for the present, with an awareness of the past, for a future which is essentially unknown.”
Have you taken a closer look at the requirements driving the evolution of your risk infrastructure? Are you addressing all the necessary requirements, at the optimal time, in the most efficient way?
And while, the regulatory future still remains in part “unknown,” with many shades of grey in between, today’s derivative practitioners can still plan for the future by pinpointing and addressing the key requirements currently driving risk infrastructure. What’s keeping you up at night? Let’s start by taking a closer look at the regulatory and other requirements driving risk infrastructures amongst derivative market participants.
Requirements Driving Risk Infrastructures |
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XVAs |
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Market Risk/FRTB |
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Collateral |
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Margin |
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Capital |
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Limits |
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Model Risk |
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Stress Testing |
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If these regulatory drivers are the compass directing us toward where we need to be—let’s also now take a look at the current state of production systems today:
A Checklist: The State of Production Systems Today |
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The Impact
First, siloed risk systems can be expensive to maintain in terms of human, compute and data costs. In addition, differences in "velocity of risk" between risk management and the front office can mean a delayed influence of enterprise risk and capital on trading decisions. Moreover, inefficiencies may also lead to a lack of timeliness in responding to new regulations, new business models and new market structures. As we've come to see, huge losses due to outdated or inaccurate models can also be problematic, as can limited transparency into risk. Also, the costs of adapting legacy architectures to upcoming needs and expensive, manual stress testing and model risk processes must also be considered. Duplicate processes and systems have also become an industry-wide challenge—in addition to the overall ballooning of risk IT costs.
Managing Growing Requirements
Truth is one. Paths are many. And, in looking toward the future, we are noticing an increasing trend in companies creating blueprints for more of a "Planned" Risk Infrastructure approach. Many institutions are also beginning to consider the ROI of what they consider to be a "Risk 2.0" Approach—which would ultimately include enterprise risk analytics and real-time risk. To learn more about building a "Risk 2.0" approach to risk analytics—and seven common mistakes to avoid in enterprise analytics infrastructure, view our related on-demand webinar.