Risk Management Failings Spur Big Financial IT Investments

Some companies have increased their investments in risk management and the computing power needed to understand complicated risks since the downturn began.
Earlier this year, senior financial supervisors from seven U.S. and international financial oversight organizations released a report evaluating the effectiveness of risk management practices at a sample of major global financial services firms and found that too often decisions were made that didn't properly take into consideration the data the firms had available to them.

"You rush out to make all the money you can and the technology picks up later," said Trent Gavazzi, CEO and founder of QuickWaters Software, whose software creates consolidated alerts for governance, risk and compliance.

There's a wider role for IT to play here to govern risk management and risk management technology, and that's in business process management, data management and improved resource planning.

"Depending on quality information, who gets it and in what time frame is what's critical," Edwards said. "IT plays a role in that in that there's a workflow piece in terms of managing the sheer volume of the information and moving it from one place to another. There's a need to reverse engineer where the decision points are in the data flow and create better business process management around that."

Some of those business processes involve getting the right data to the right people via business intelligence dashboards to show people a consolidated view of data and master data management technology to synthesize it. QuickWaters, for example, uses a desktop widget-based alerting system to notify CxOs of an array of problems, like trading limit breaches or lapses in supervisory tasks.

"If you can't bring your risk profile into context, how do you know where you stand?" Gavazzi asked.

The Counterparty Risk Management Policy Group III, which consists largely of risk management execs from a number of big banks, last month issued a report urging a shift toward more transparency and a renewed focus in risk monitoring and management and admitted that those changes may require new "costly investments" in technology. Regulators may follow suit.

"What regulators want is to make sure every player has a formal, consistent process in place," Berman said. "Part of that is going to be, certainly the regulation can be more transparent, in terms of, you must be able to say to an auditor that for a position you are taking you're adequately taking into account the risk factors."

Information governance is becoming ever more critical on Wall Street, but just because the technology is there doesn't mean people will use it correctly or bother getting all the necessary data. That's a lesson not just for Wall Street, but for all IT managers to take in.

What are the other paths to risk management? InformationWeek has published an independent analysis of the subject. Download the report here (registration required).