There were a few major themes that came out of FINCAD’s recent industry survey, looking at how financial institutions are evolving risk technology to meet regulatory demand. We hosted a webinar where we presented these results and there was quite a lot of interest on this subject but in case you weren’t able to attend we captured these key highlights in this blog post for your convenience.
This survey was a good chance to understand the thought process of the quantitative and risk managers at firms, with nearly 300 market participants providing their granular feedback on what they are facing.
Firstly, the majority of financial markets professionals surveyed (90%) are being impacted in some capacity by the changing regulatory environment and, more importantly, a full 67% are being directly impacted by changing regulation. This is significant in that these teams needed to significantly modify current financial analytics (risk and pricing systems) as a result of these regulatory seismic shifts. If we were to take a look at Solvency II, significant valuation and risk reporting measures need to be in place at the beginning of 2016.
Even more eye-opening are the 65% surveyed who indicated that they are (or will be) undergoing substantial pricing and risk systems development that are required to better comply with regulatory requirements. This is impressive in that those experiencing a pricing and risk systems impact, 82% are currently improving their risk processes around analytics, transparency, calculations speed and data accuracy.
Additionally, half the survey respondents (risk managers) when asked about their highest priority, 45% indicated that they are specifically focusing on model risk and model validation procedures, with a need to provide better controls and processes with better accuracy and transparency.
Calculation speed was also one of the key contributors to industry challenges, with only 16% of those surveyed are performing real time or on-demand risk calculations, so a significant portion are running EOD or periodic risk runs, impeding accuracy in risk calculations.
Also highlighted by market risk managers in the survey findings as a key pricing challenge is in to curve construction capabilities; most significantly in an inability to handle negative rates, the ability to correctly price multi-currency portfolios and centralized calibration and management of all discounting curves. These were key considerations for those managing multi-currency, multi-asset portfolios.
We summarized the survey highlights in a convenient infographic. Make sure to take a look.