CURRENT STATE OF SYSTEMS

Financial institutions will chose their risk management paths and associated IT (information technology) systems. A real-time online dealing system performs as the eyes and ears of modern trading. Linked to a risk management nose for trouble, institutions should be able to trade more securely and more profitably.
There is strong competitive advantage to be derived from a powerful union of business and IT. We have to look at the varying results and levels of success within the IT of many banks and funds. There has been a mountain of literature published about the wonders of working in the new information age. The dot-com craze certainly heightened this sentiment. But, the resounding crash of the IT sector showed that there are real limits to marketing hype. There are potential faults on both sides of supplier and client that raise unrealistic business expectations in IT system delivery. Banking and fund management require skilled coordination between IT and risk management that is focused on business success.
The complexity of financial markets has increased because of the development of newer products and services in an increasingly global economy. Derivative instruments also require a higher level of quantitative techniques to cope with them. Back-office clearing and settlements systems do not always keep up with these technological advances, so mismatches will be frequent with the advent of new trading products.
One of the most prevalent problems is that the antiquity of the major clearing and settlement systems in the back office has meant that they lack the flexibility to be able to handle the welter of new financial products emanating from the front office. Because of this, there is frequent recourse to manual intervention and Excel spreadsheets, with all the attendant potential for error that this entails.
Investor understanding in this respect has declined. Even bank top management has often shed little light upon this extremely unglamorous failure. A huge financial loss arising from a rogue trader is much more understandable than a consistent and innocent seepage from the back office and settlements. Risk management must be focused on accurate goals.
Was the IT project conceived in a manner where initial goals were realistic? These have to be gauged against the bank’s resources and the IT supplier’s own input. When the business culture of the financial institution proves unsuitable to implementing an appropriate system, this quicksand can sink a project before it is launched. Realistic expectations and a good idea of project risk-return are essential pictures for top management to formulate before calling in technology to solve a business problem.
It is advisable to consult RAMP or PRINCE2 2 methodologies before plunging into the deep end of complex risk management systems. Buying solely upon a salesman’s pitch or IT director’s recommendation can be a sorry choice. Companies need the guidance of a methodology such as RAMP. This is a blueprint that is filled in with data and finalised at the end.