Differentiating with Risk Management solutions
Risk management has taken center stage even as global economies are getting more coupled and inter-connected.
Constant changes in market dynamics and elevated competition motivate firms to overlook potentially destructive risks resulting in unethical business practices in order to maintain their margins and attract new customers. Even firms that were considered unscathed by the crisis were exposed to risk management failures. JP Morgan, for example, announced a $2 billion loss coming from its London trading desk caused by complex credit default swaps (CDS). After investigations, the regulators severely criticized the bank for its flawed risk controls. Goldman Sachs, another major investment bank was also charged $1.5 million by the Commodity Futures Trading Commission (CFTC) for failing to supervise several futures trades on S&P e-mini futures contract initiated in 2007. Apart from the fine, Goldman absorbed losses of more than $100 million in covering the positions. A chain of these events could potentially trigger another financial crisis just as the global economy is regaining investor confidence which fell to lowest levels in history due to the credit crisis which began in 2007.
The Risk management opportunity
Over the years, risk management has been considered a mere cost cutting measure and a regulatory requirement. However, the ideal way forward is to take a proactive approach to risk management considering it as an opportunity by embedding it into different verticals and systems across the firm. Firms providing technology solutions need to invest in building robust risk management capabilities that identifies potential risks and empowers firms to withstand economic shocks.
Leveraging technology for effective risk management
Portfolio managers across the globe are increasingly becoming technology dependent increasing the need for risk management techniques integrated with these solutions. Apart from adopting a general enterprise wide risk management solution, it is imperative for technology companies to identify gaps on a case by case basis to provide an end to end risk management solution.
As investment firms are increasing technology investments to gain faster access to real time market data, it becomes important for service providers to differentiate themselves by offering such faster platforms that effectively integrates the required risk metrics. The fallout of the crisis and increased oversight on risk management provide enormous opportunities for technology vendors to partner investment firms and build forward-looking, enterprise-wide risk management solutions enabling clients to target long term sustainable growth. Technology-led offerings such as Cloud Computing, Mobility, Big Data and Predictive Analytics will drive the Transformational offerings in the Risk arena going forward.
Risk Management culture
In order to provide an integrated risk management solution, technology firms need to shift considerable focus on understanding this rather opportunistic yet sensitive area. To begin with, these firms should try and build a risk management culture within the organization covering various departments. Top level executives at these firms need to get back to the drawing board and brainstorm on building effective risk and compliance protocols and programs that capture and updates relevant regulations.
Technology providers should focus on transparent and secure allocation of responsibilities and proper bridges to separate risky departments that deals with sensitive market data. Organization silos that can turn out to be potentially destructive should be monitored, identified and eliminated paving the way for effective flow of information on various risk and compliance practices across various systems and departments.
The information should be clear, understandable and unambiguous. Employees need to be guided on these practices and assessed at regular intervals. An environment for employees to discuss and raise questions on various risk and compliance procedures need to encouraged and emphasis need to be laid on communicating the sensitiveness surrounding the use of confidential client data. Every stakeholder also needs to understand the consequences of breaching compliance requirements.
Risk management has become the foreword for every investment management firm providing an opportunity for technology vendors to acknowledge this and position themselves as safe and secure partners offering long term strategic value. Steps taken on building internally effective risk management architecture and culture can be leveraged to meet complex market dynamics and changing regulatory requirements. Formal associations with various international risk management associations to strengthen conceptual understanding can work as effective differentiators when targeting technology budgets.
Syntel’s Risk management practices
Syntel is a global technology solutions provider counting top investment management firms as it clients. The company’s dedicated and robust Governance, Risk and Compliance (GRC) division partners with clients in understanding inherent risks and provides niche solutions to mitigate them. The firm’s concentrated and holistic approach has resulted in successful implementations for its clients in the GRC space empowering clients to focus on achieving sustainable growth.