6 August 2010
A recent survey found that the vast majority (85%) of financial services and IT professionals do not have performance management systems completely integrated with risk analysis systems, according to Oracle's 'European Confidence Report'. In addition, 41% of those that do not currently assess risk and performance together are not seeking to actively incorporate risk into decision-making. This means that decision-makers will continue to make critical business choices without accounting for the all challenges that their business face.
In an interview with gtnews, Nazif Mohammed, vice president Europe, Middle East and Africa (EMEA), finances services, Oracle said: "We are living through incredible times - [the crisis] is probably the most expensive training exercise in bank performance measurement. Even the layperson on the street is now aware of stress testing. The aim of the survey was to understand the 'new normal' and see if the banks are actively incorporating risk into their day-to-day decision-making."
The research, conducted by Vanson Bourne, surveyed 228 financial services professionals and 222 IT professionals in financial institutions across Europe, including the UK and Ireland, France, Germany, Italy, Belgium, the Netherlands, Luxembourg and Switzerland.
The survey's key findings include:
•Almost half of all participating banks were not confident of the accuracy of their risk and counterparty related data. Alarmingly, more than one in seven (14%) admitted they are unable to monitor and respond to changing risk scenarios.
•Financial institutions are not leveraging integrated risk information in decision-making: 41% of financial institutions surveyed do not currently assess risk and performance together, and only 18% of respondents reported an ability to deliver performance and risk information to the business in real-time.
•Existing IT systems are unable to deliver what the business needs to react immediately to external events: only 26% of respondents are confident that their existing IT system is capable of using stored data to provide a full risk analysis across all business units.
•Almost two-thirds (64%) do not have confidence that IT is able to provide a 360-degree view of the entire business. For example, only 32% of the participating banks claimed they had access to vital data like counterparty information and 25% of the participating UK banks couldn't even produce this information.
Mohammed said: "Financial institutions understand how important it is to assess risk and performance management together, but have great difficulty in doing so for various reasons, such as data silos or legacy banking systems. The problem is also in the way businesses are structured, with a finance team that looks at profitability and a risk management team that solely looks at risk, and those shall not come together. Many times at our customer meetings these professionals exchange cards because they are meeting for the first time."
Across EMEA, only 24% see risk assessment and performance management as being tightly dependent, where both aspects are continuously assessed and reported on. Despite this, almost a third (29%) of respondents have an element of their remuneration package based on the accuracy of their information and in next three to five years, 58% will see risk actively be built into the process of pricing products. With these considerations it is surprising that more banks are not actively incorporating risk into business performance already.
Meeting the Compliance Challenge
The current business climate also means that financial institutions will continue to be subject to more regulations, making the need for integrated systems even more critical. Eighty six percent expect to see some or high levels of changes in the regulatory load on their organisation or in the financial services market. Compounding this problem is the fact that 40% believe that increasing compliance coupled with tougher deadlines will continue to hinder data accuracy.
"Financial institutions take regulatory pressures very seriously, but the challenge is in the approach," said Mohammed. "Do they add yet another system and continue trying to patch the holes to meet the requirements? This is a common approach - put a reporting system in place for liquidity management, another for pulling data for stress testing, etc. But this is done with very little co-ordination across the group. Financial institutions need to take a different approach where these systems are seen are part of an overall architecture of addressing the data, the transaction and the reporting capabilities."
First published on www.gtnews.com
- Joy Macknight
- I am deputy editor at The Banker, a Financial Times publication. I joined the magazine in August 2015 as transaction banking and technology editor, which remain the beats I cover. Previously I was features editor at Profit & Loss, an FX and derivatives publication and events company. Before that I was editorial director of Treasury Today following a period as editor of gtnews.com. I also worked on Banking Technology, Computer Weekly, and IBM Computer Today. I have a BSc from the University of Victoria, Canada.