Big Data in Risk Management: Tools Providing New Insight

by Bill Fearnley, Jr, December 5, 2013
Industry Trends
North America

Abstract

Celent estimates spending on Big Data in risk management will grow from $470 million in 2014 to $730 million in 2016 as tools mature and firms deploy more enterprisewide solutions.

Financial firms remain under constant pressure to improve their risk management systems, analysis, and reporting. New open source software tools are helping firms analyze more data types and sources faster. Celent believes Big Data will become an integral part of risk systems and analysis as a complement to existing systems and tools.

In the report Big Data in Risk Management, Celent discusses the benefits of Big Data in risk management and evaluates the potential for Big Data in:

  • Risk assessment and measurement.
  • Front office and risk operations.
  • Risk control and monitoring.
  • Risk reporting and governance.

So why Big Data now? In the recent financial crisis, many market participants and regulators discovered that their data architecture and IT systems could not support monitoring and managing a broad spectrum of risks. Regulators want more frequent reporting of a wide variety of risks and expect firms to be able to respond quickly to ad hoc requests. To meet more timely and detailed management and regulatory requirements, firms are increasingly investing in open source software solutions (e.g., Hadoop and MapReduce) and sophisticated data management tools such as in-memory databases and analytics.

“Firms can gain insights from adding new types and sources of nonfinancial data to risk management models,” says Bill Fearnley, Jr., Senior Analyst with Celent’s Securities & Investments Group and author of the report. “Firms should start with controlled pilot projects that can be scaled for use by other groups and functions within the firm.”

This report examines the benefits of Big Data in major risk domains and provides a detailed discussion evaluating the potential for Big Data in risk management. The report includes nine brief case studies.

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 subsidiary 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

Benefits of Big Data in Risk Management

3

 

Big Data Benefits in the Major Risk Domains

5

Evaluating the Potential for Big Data in Risk Management

8

 

Risk Assessment and Measurement

8

 

Front Office and Risk Operations

10

 

Risk Control and Monitoring

12

 

Risk Reporting and Governance

14

Looking Forward

15

Appendix 1: Brief Technology Overview

17

Appendix 2: Sources and Types of Data for Risk Management

19

Leveraging Celent’s Expertise

20

 

Support for Financial Institutions

20

 

Support for Vendors

20

Related Celent Research

21

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