Risk Management Outlook 2014: Trends, Tensions, and Transformations in the Value Chain

by Cubillas Ding, February 21, 2014
Industry Trends
Asia-Pacific, EMEA, North America

Abstract

Point-based risk and regulatory optimization efforts will need to go beyond one-off project efforts. Efforts must transition to a state where coordinated optimization across the ecosystem’s chain of activities can be done on a business-as-usual basis.

In the report Risk Management Outlook 2014: Trends, Tensions and Transformations in the Value Chain, Celent examines the current state of risk and regulatory initiatives and ongoing pressure points, and provides pointers to navigating the journey ahead.

The industry is at the halfway mark in delivering initiatives to mitigate cost impact and complexities in the new market environment. Despite best efforts to harmonize, coordinate, and standardize supervisory requirements, Celent believes that regulatory fragmentation is likely to be an immediate feature of the new environment.

Firms will need to be smarter in understanding and triangulating the drivers of the profitability and cost equation. Beyond current efforts, firms will need to focus on enhancing both strategic and operational levers to mitigate the potentially corrosive effects from the structural changes. In this regard, opportunities and threats in the financial services industry are inextricably tied to risk practices and technology infrastructure. Strategic investments in driving cultural, operational, and technology changes will be key determinants to successful execution.

“The outlook can be attractive if firms play their cards right, but detrimental if response initiatives are not executed cohesively,” says Cubillas Ding, Research Director with Celent’s Securities & Investments Group and author of the report. “Looking forward, we anticipate tougher choices and heavier lifting.”

This report evaluates where the industry stands with risk and regulatory initiatives and explores the emerging outlook, trends, and potential transformations that financial firms should emphasize. We provide five action levers that firms have to master to play for the long haul, and examine instances of Tier 1 financial institutions in their quest to navigate emerging opportunities.

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 part of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America (Boston)
Erica Ferguson
eferguson@celent.com
Tel.: +1 617 262 8225

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)208 870 7875

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81.3.3500.3023

Table of Contents

Executive Summary

1

The Rocky Road So Far

2

Navigating the Journey

4

 

Action Lever 1: Making Stress-Testing Less Stressful

4

 

Action Lever 2: Walking the RWA, Leverage, and Capital Tightrope

7

 

Action Lever 3: Sophisticated Market Valuation Adjustments

9

 

Action Lever 4: Seeing the Whole in Collateral Efficiency Initiative

11

 

Action Lever 5: Mutualizing Nondifferentiating Activity Chains

12

Outlook

14

Leveraging Celent’s Expertise

15

 

Support for Financial Institutions

15

 

Support for Vendors

15

Related Celent Research

16

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