Strategic Innovations in Risk Management (Part 1): Compliance 1, Innovation 0

by Cubillas Ding, August 9, 2013
Industry Trends
Global

Abstract

The financial industry is expected to spend in excess of $50 billion on risk and regulatory initiatives globally by 2015. However, financial firms need to actively drive efforts to align rapid technological advancements with the pursuit of business innovation and value, rather than taking a bare essentials approach that merely adheres to minimum standards.

In the first report in a series, Strategic Innovations in Risk Management, Celent examines the innovation dynamics happening in risk management as well as the underlying dimensions that drive, facilitate, and profit from these dynamics.

At the most fundamental level, infrastructure innovations are already rapidly playing out, enabled by the ongoing advances in high performance computing (HPC). These have been exploited to various degrees of maturity, with some vendors and financial institutions reaching “at scale” commercial readiness in areas of time-critical, calculation-intensive risk processing for front office derivatives pricing and VaR calculations, as well as for counterparty risk / CVA analytics and firmwide portfolio risk measurement.

In spite of impressive leaps in “raw performance,” reducing processing times for risk analysis, the real story around innovation does not end there. Celent believes this is but the tip of the iceberg, and the precursor to more profound cycles of innovation at a higher level.

“As we analyze market developments and examples in how leading firms are pursuing efforts to change, we believe that the pockets of innovation will expand and intensify,” says Cubillas Ding, Celent Research Director and author of the report. “Those who are successful in the innovation game will be able to reap the rewards in a financial landscape very different from today’s — one with a radically altered risk, compliance, and capital regime.”

"These will require timely, customer-centric views of risk under highly fluid scenarios, powered by efficient collateral, liquidity/funding, and capital management operations at its core. This will be a crucial part of how firms will compete,” he adds.

This study investigates and analyzes the innovation dynamics happening across six themes and the underlying dimensions of infrastructure enablement, architectural strategies, and new paradigms for IT sourcing and delivery; critical new business capabilities; and the operational models for risk management that adequately support and enable innovations in the business as we head towards the new financial landscape. The report provides a framework to understand and plan for the various levels of innovation and highlight examples associated with innovation themes.

This 22-page report contains 11 figures and one table.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

Introduction

2

Preparing for Uncertainty and Reconfiguring for Change

3

 

Preparing for Current and Emerging Risks

3

 

The Imperative for Innovation

3

Innovation Themes in Risk Management Technology and Operations

5

 

The Process of Innovation: Steps to Change

5

 

The Content of Innovation: Themes to Embrace

6

 

Innovations in Infrastructure Enablement

7

 

Innovations in Architectural Strategy

8

 

Innovations in Risk IT Management, Sourcing, and Delivery

10

 

Innovations in Process Alignment and Optimization

11

 

Innovations in Business Capabilities and Levers

12

 

Innovations in Business and Operating Models

14

Strengthening Innovation Foundations: Putting It All Together

15

Leveraging Celent’s Expertise

17

 

Support for Financial Institutions

17

 

Support for Vendors

17

Related Celent Research

18

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