Risk Management Business and IT Outlook 2017: Traversing the Politics of Identity, Industrialization, and Innovation

by Cubillas Ding, April 19, 2017
Industry Trends
Global

Abstract

Risk management and compliance capabilities are next in line to ride the innovation wave.

Celent has released a new report titled Risk Management Business and IT Outlook 2017: Traversing the Politics of Identity, Industrialization, and Innovation. The report was written by Cubillas Ding, a Research Director with Celent’s Securities & Investments practice.

The shift towards more intrusive, fragmented and data-intensive regulatory regimes requires firms to push the envelope to achieve economies of scale, operational consistency, and transparency to be embedded as much as possible in financial services business models. Alongside the weight of industry reform focused on risk, capital, and compliance requirements, financial institutions face a new world where the forces of industrialization and innovation intermingle, set against potential fallouts from the recent tide of identity politics around populism and nationalism. Macropolitical and social risks are now important considerations for risk managers.

Not immune to the broader cost reduction agenda, risk and compliance functions are required to align to a bank’s strategic responses and contribute to firmwide efficiency and cost-cutting targets, with the near-term focus on keeping regulators at bay and keeping the lights on. More institutions are pursuing efforts to reduce inefficiencies in risk and compliance activities, and to optimize an institution's total cost of risk. The “industrialization of supply chains” — risk data, risk models, and information production and reporting processes — will require firms to invest in emerging innovations, technologies, IT paradigms, and fintech partnerships in order to achieve a meaningful step change.

“RiskTech and RegTech players are entering this space in earnest, while forward-thinking financial firms are looking for innovation-enabled change to respond to regulatory and risk management challenges and ongoing cost pressures,” says Ding.

“However, the road ahead entails being pragmatic in managing real tensions between regulatory conservatism around issues of risk and compliance, balancing business-as-usual commitments, and executing smart tactics in adopting new innovations,” he adds.

In this report, Celent provides an updated view on where firms stand at the current juncture around risk and regulatory initiatives, and how to respond in the near to mid-term horizon.

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

3

 

Key Research Questions

3

Gathering Pace: Industrialization, Changing Rules, and Macro Risks

4

 

1. The Politics of Financial Regulation

4

 

2. Efficiency and Effectiveness in Risk Production Activities

7

 

3. Building Next-Generation Data Analytics Capabilities for Managing Risk

8

 

4. Risk-Sensitive Accounting and Expected Credit Loss Adjustments

9

 

5. Ramping Up Delivery of Market Risk Capabilities and FRTB

11

 

6. KYC and AML Operating Models and Data Provisioning Are Undergoing the Next Stage of Evolution

14

 

7. RiskTech and RegTech Innovations Are Landing on Risk and Compliance Domains

15

Looking Forward

17

Leveraging Celent’s Expertise

19

 

Support for Financial Institutions

19

 

Support for Vendors

19

Related Celent Research

20

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