Digitalisation of risk technology will be a pivotal factor in the monitoring and management of risk during increasingly common periods of volatility and continuing market uncertainty, according to findings by Aite Group, a global research and advisory firm, and Torstone Technology, a leading provider of post-trade processing and risk management.

The paper, underpinned by extensive research based on interviews with leading global banks and industry practitioners, describes a number of risk management trends that are being shaped by the recent wave of volatility, new regulatory requirements, the ever-growing volume of data, and market structure changes impacting sell-side institutions.

The study highlights the need for risk systems that can withstand the past and current market turmoil as a key differentiator, especially as the industry grapples with the ongoing uncertainty of a global pandemic. According to the study, the use of innovative cloud-based technology, is increasing in risk management and will influence changes within organisational structures necessary to achieve scale while reducing total cost of ownership. It also highlights a growing need for the sell-side to identify synergies across regulations and optimise the use of data in risk management and other business areas, resulting in lower costs in the long run.

Commenting on the research findings, Anthony Pereira, Head of Torstone's Risk Platform, said: “In rapidly changing global markets, risk teams need technology that provides real-time oversight and the capability to answer new questions not captured in their daily batch reports. This comes while operational and compliance costs continue to increase for the industry, putting ever-greater pressures on the firms already operating in a challenging environment characterised by thin margins. With new regulations such as FRTB in sight, sell-side firms that have invested in upgrading their risk systems will have a clear advantage over those who have not. Reviewing the existing inefficiencies and identifying areas for improvement would be a key first step. Always-on, centralised, cloud-based risk technology that is scalable in times of volatility is the foundation for robust risk management in the years to come.”

Audrey Blater, senior analyst at Aite Group added “The boundaries of existing risk management technology are being tested more intensely now than ever before. Ongoing market volatility necessitates rigorous calculations as well as increased data management and consumption. The shift to digitalization will continue to find its way into various parts of banks as technology creates common threads across business areas.”

The study observed that in risk management, practical use cases for AI and machine learning will be slow to develop, although this technology will eventually equip chief risk officers with a better toolbox of analytics and capabilities. The research also highlighted that due to its computing-intensive nature, risk analytics is a focus area for deployment of more scalable technologies, such as cloud. The study predicts that hosted deployment will continue to replace on-premises risk systems as cloud-native solutions become increasingly commonplace.