Survey: risk management & technology challenges for banks and investment managers

In today's rapidly evolving business landscape, managing risk has become a paramount concern for organisations across financial services. As technology continues to advance at an unprecedented pace, firms face significant challenges in effectively managing risk and safeguarding their operations.
14 Jun, 2023

This survey was carried out at Quantifi’s annual trading and risk conference in New York. Over 100 individuals from across the financial services industry were invited to take part in the survey.

What do you consider to be the top challenge firms face when it comes to managing risk?

The results of the survey indicate that firms encounter several technology challenges in their risk management efforts. Among the respondents, the most prominent challenges identified were managing the complexity and customisation of risk models and analytics, and the lack of skilled personnel to manage and implement risk technology solutions. Each account for 27% of the total responses.

In today’s complex environment, financial services firms heavily rely on sophisticated technology tools to manage and mitigate risks. However, these tools require specialised knowledge and expertise to effectively utilise them. Without skilled personnel, banks may struggle to fully leverage the capabilities of risk technology solutions, leading to suboptimal risk management practices.

Customising risk models requires expertise, resources, and time, while ensuring their accuracy and relevance in ever-changing market conditions. Complexity arises from the need to incorporate diverse data sources, address regulatory requirements, and adapt to evolving risk management practices.

Firms are increasingly depending on external technology providers, such as Quantifi, that have the necessary skills and experience in risk modelling and implementing risk technology solutions. Through outsourcing to these providers, firms can harness their expertise in modelling and analytics, and gain access to a wider array of skills and knowledge that may be lacking internally. Furthermore, outsourcing offers potential cost savings and flexibility, as firms can scale their risk technology operations based on their specific needs.

While external providers offer advantages, it is essential for firms to carefully evaluate and select reputable providers who align with their risk management objectives. Effective oversight and collaboration between the firm and the outsourcing partner are crucial to ensure the seamless integration and successful implementation of risk technology solutions.

Which steps has your organisation taken to improve risk management?

The survey revealed that 31% of respondents recognised the importance of updating internal risk management tools and systems. Upgrading risk management tools reflects a commitment to staying ahead in an ever-evolving risk landscape, enabling firms to enhance their risk assessment capabilities, make more informed decisions, and respond promptly to emerging threats. It also demonstrates a recognition of the role technology plays in streamlining risk management processes and improving overall firms’ resilience.

Another notable finding is that 27% of firms have chosen to conduct more frequent risk assessments and stress tests, highlighting a proactive approach to risk management, emphasising the need for regular evaluation of potential risks and the resilience of the firm under adverse conditions.

Quantifi’s stress testing functionality supports the ability to stress a range of product attributes or market risk factors and measure their impact on market, credit, counterparty, and liquidity risk measures. Clients can set up risk runs, user-define scenarios, and stress tests using intuitive configuration tools. Quantifi can also shock market data underlying the cash flows to monitor the expected changes in any parameter of the portfolio, including forecasted cash flows and balances.

Which of these approaches do you consider the most important for improving data integration?

Among the respondents, 31% emphasised the significance of utilising cloud-based solutions to reduce hardware and infrastructure costs. This highlights the recognition of the benefits of leveraging cloud technology to enhance data integration capabilities, scalability, and cost-efficiency.

Cloud-based solutions, like Quantifi, eliminate the need for firms to invest heavily in physical infrastructure, such as servers and data centres. This significantly reduces upfront costs and ongoing maintenance expenses, making data integration more cost-effective. Cloud solutions also provide scalability and flexibility, allowing firms to easily scale up or down on their data requirements based on their needs. This agility is crucial in managing dynamic data volumes and accommodating growth or fluctuations in business requirements.

A further 30% of participants stressed the importance of enhancing data governance and standardisation processes. This underscores the need for well-defined data management practices and protocols to reduce data quality issues and ensure consistent integration across systems.

Effective data governance ensures that data is accurately defined, classified, and managed across the firm. It establishes clear protocols, guidelines, and quality control measures to ensure data consistency and integrity. Standardisation processes help establish common data formats, structures, and definitions, facilitating seamless integration between different systems and applications. This reduces data inconsistencies, compatibility issues, and duplication errors. With enhanced data governance and standardisation, firms can improve data quality, ensure reliable and accurate information, improve decision-making processes, and optimise the efficiency of data integration efforts.

What are the top 3 requirements for a risk technology solution?

Robust data management and integration (62%), as well as flexible and customisable risk models (61%), emerged as the most important requirements.

Risk management involves complex analysis and dependencies on different data sets. Robust data management and integration capabilities enable the solution to perform advanced analytics, such as correlation analysis and scenario analysis, ensuring a more accurate and comprehensive understanding of risks.

Quantifi clients benefit from the unparalleled flexibility of its ETL layer which provides rapid and robust bi-directional interfacing with external data sources using a variety of formats. This flexibility translates into a significantly faster and more robust integration.

Risk management needs can vary significantly across firms due to differences i.e., in size, and risk appetite. Having the ability to adapt and customise risk models and analytics allows firms to tailor the solution to their specific requirements. This flexibility enables firms to incorporate their unique risk factors, adjust risk parameters, and align the solution with their risk management strategies. It empowers users to define and modify risk models and analytics based on evolving business needs and changing market conditions.

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