Ten trends that will shape risk management and technology in 2010, according to SunGard, are:
- Chief risk officers will intensify management oversight to satisfy stakeholder demand for risk transparency and expected levels of risk exposure.
- The interdependent network of banking roles (trading, risk, management) will cause internal risk cultures to strengthen.
- 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.
- Value-at-risk (VaR) measurement needs to be supported by additional measures and good risk oversight and management.
- Measurement of the likelihood of rare events (VaR tail analysis) will be more widely adopted to help firms find catastrophic break points.
- Stress-testing of portfolios will become an increasingly more significant contributor to risk reporting.
- 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.
- 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.
- External (investor) assessment of visible, effective risk management will directly impact firms’ ability to raise capital.
- Regulatory pressure on risk management will remain high, as central banks and politicians manage the ‘post-crisis’ under extreme media scrutiny.
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.”