Back to the Future in Risk Management: Realizing the Promise of True Risk/Reward Decisions

by Cubillas Ding, July 28, 2015
Industry Trends
Global, EMEA, North America

Abstract

With risk management and related regulatory compliance spending exceeding $50 billion globally, Celent urges firms to adopt smarter approaches in order to realize true risk/reward decisions enabled by converged risk and finance operations.

 

Market, structural, and regulatory forces continue to shape the financial industry’s future and its evolving search for sustainable business models. The industry has come a long way since the financial crisis, but there is much work to be completed. Post-crisis regulatory reforms are expected to drive risk management and related regulatory compliance spending in 2015 to exceed $50 billion globally, with the average expenditures of a Tier 1 bank standing in excess of $0.5 billion. Accounting rules, capital regimes, and regulatory stress tests are increasing in scope and depth, with regulators requiring firms to demonstrate strict data management practices and stringent standards.

In this report series Back to the Future in Risk Management: Realizing the Promise of True Risk/Reward Decisions, Celent examines the trends, imperatives, and implementation strategies to industrialize risk and finance capabilities towards a converged state of operations.

There is a growing realization that the status quo of “short-term patches” is untenable if firms are looking to sustainably operate effectively and efficiently for the medium-to-long term.

“Akin to avoiding the proverbial last regulatory straw that breaks the camel’s back, we believe that now is the time to re-examine the business case for a more integrated risk and finance approach,” says Cubillas Ding, Research Director with Celent’s Securities & Investments practice and author of the report. “In many cases, there are already efforts towards better coordinating strategies and plans across risk, finance, and treasury functions; this is no longer a point of debate. More typical than not, however, financial institutions have failed to make a compelling case to address the problem strategically in their execution efforts,” Ding adds.

In this report, Celent presents recommendations for financial firms to adopt smarter approaches in clarifying the business case and executing change efforts in order to balance the competing demands of regulatory transformation, internal cost reduction pressures, and emerging “in-flight” requirements as they move towards their target risk and finance operations, enabled by more cohesive technology and data architecture.

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

 

Key Research Questions

1

Introduction

3

 

Key Research Questions

4

Sustained Impact from Regulation Is Driving New Imperatives

5

 

Strategic Goals and Operational Enablement to Protect Returns

5

 

Looking Back in Time: We Have Been Here Before

6

 

Drivers for Change and Sustainability

7

Is There a Case for Fundamental Change?

9

 

What Executives Aspire To

9

 

Does It Make Business Sense?

10

Realising Outcomes: Strategies for Success

12

 

Beyond a Regulatory Lens

12

 

Action Points and Recommendations

12

Looking Forward

20

Leveraging Celent’s Expertise

21

 

Support for Financial Institutions

21

 

Support for Vendors

21

Related Celent Research

22

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