Risk management is at the heart of the modern banking operation.
Financial institutions (FIs) are seeking increasingly sophisticated
new tools to enable them to improve transparency across the
business and manage their exposure to risk more effectively.
Banking and securities regulators have made it clear that
they will focus strongly on risk and compliance functions during
inspections and in determining capital requirements; and this focus
will not go away. Risk management can no longer be reactive and
retrospective; risk managers need to be able to operate
In the light of this, FIs are collectively spending billions on
increasingly sophisticated software, as their current risk systems
struggle to keep up with the demands being placed on them. Indeed,
it sometimes seems like a very expensive game of 'catch-up'.
And it's not just the FIs but also suppliers like Misys who are
investing in this area. Surely this means that market and company
issues caused by inadequate risk management and irresponsible
trading can one day be eradicated through the services of the 'new
age' of risk and compliance systems.
Well, perhaps not totally.
The banks cited in recent allegations of LIBOR manipulation are
among the largest in the world and must have invested very heavily
in the best risk management systems available. Unfortunately, no
matter how much they spend, there is one type of risk they can't
hope to eliminate completely ; the 'human' element.
In this particular instance, with LIBOR reporting basically an
'honour' system for the banks involved (albeit tracked for unusual
movements) it was always going to be open to potential manipulation
by individuals within contributing firms, seeking personal or
The 'human touch' cannot be removed from business. FIs are run
by people. Systems can go a long way in helping to minimise risk
across the enterprise, but how do you design a system that can
prevent the calling in of a favour?
This post was written by Sue Dobson.