Strategic Innovations in Risk Management (Part 1): Compliance 1, Innovation 0

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7 August 2013


The financial industry is expected to spend in excess of $50 billion on risk and regulatory initiatives globally by 2015. However, financial firms need to actively drive efforts to align rapid technological advancements with the pursuit of business innovation and value, rather than taking a bare essentials approach that merely adheres to minimum standards.

In the first report in a series, Strategic Innovations in Risk Management, Celent examines the innovation dynamics happening in risk management as well as the underlying dimensions that drive, facilitate, and profit from these dynamics.

At the most fundamental level, infrastructure innovations are already rapidly playing out, enabled by the ongoing advances in high performance computing (HPC). These have been exploited to various degrees of maturity, with some vendors and financial institutions reaching “at scale” commercial readiness in areas of time-critical, calculation-intensive risk processing for front office derivatives pricing and VaR calculations, as well as for counterparty risk / CVA analytics and firmwide portfolio risk measurement.

In spite of impressive leaps in “raw performance,” reducing processing times for risk analysis, the real story around innovation does not end there. Celent believes this is but the tip of the iceberg, and the precursor to more profound cycles of innovation at a higher level.

“As we analyze market developments and examples in how leading firms are pursuing efforts to change, we believe that the pockets of innovation will expand and intensify,” says Cubillas Ding, Celent Research Director and author of the report. “Those who are successful in the innovation game will be able to reap the rewards in a financial landscape very different from today’s — one with a radically altered risk, compliance, and capital regime.”

"These will require timely, customer-centric views of risk under highly fluid scenarios, powered by efficient collateral, liquidity/funding, and capital management operations at its core. This will be a crucial part of how firms will compete,” he adds.

This study investigates and analyzes the innovation dynamics happening across six themes and the underlying dimensions of infrastructure enablement, architectural strategies, and new paradigms for IT sourcing and delivery; critical new business capabilities; and the operational models for risk management that adequately support and enable innovations in the business as we head towards the new financial landscape. The report provides a framework to understand and plan for the various levels of innovation and highlight examples associated with innovation themes.

This 22-page report contains 11 figures and one table.