The risk context

Everyone in the financial sector has been influenced and impacted in some way or another by the increased focus on risk management and compliance in recent years. Whether it is UK FSA Liquidity Risk rules, SOX from the US, or Basel from the BIS, or Solvency II for the insurance sector, new requirements are everywhere.

The Liquidity Risk imperative

The UK FSA has taken the lead in formalising a Liquidity Risk regime which will be implementated from mid 2010 leaving only a few months for all FSA regulated banks to get their solutions in place. US and European regulators are also working on getting their own versions finalised which will result in further changes. In addition, globally regulators have been tasked with developing enhanced guidance to strengthen banks' liquidity risk management practices, in line with international best practices, and to encourage financial firms to re-examine their internal controls and implement strengthened policies for sound risk management. If, like many financial institutions, a good proportion of your internal controls, and risk assessments and workflow are heavily dependent on slow manual, error prone and disjointed processes, then these will attract renewed attention from your regulator.

Practical Solutions

However, you may feel that you may not have budget or resources to fix these issues in what is a relatively short time. MPI Europe, working with leading risk management product vendor FERNBACH, have put together a flexible Liqudity Risk solution to address these issues. FERNBACH’s software is already in use in several large financial institutions for liquidity risk management, controls and assessment, and MPI Europe’s consultants have delivered risk management projects across a range of financial institutions from large banks to corporate. Together with a technology platform based on the industry leading Intel chip, we can offer a flexible, rapidly implemented packaged solution to these issues and are already engaged in detailed and ongoing discussions with several large firms. To find out how we could help you please contact us for an initial informal discussion More >>

Risk Management Survey

MPI Europe conducted a survey in 2009 of senior people in risk management to gain a better understanding of the view of the market on this important topic and to further inform and influence the wider debate. This survey was intended to both help explain what happened as part of the credit crisis and to discover the actions firms are seeking to undertake to address these identified failings. We received a very healthy response rate, which suggests that this is a topic close to most people’s hearts at the moment. So what did we find?

With widespread acceptance that over the past few years the business priority had shifted too far towards short term profitability, so the longer term risks were underplayed or risks such as Liquidity Risk were largely ignored, our survey finds that the market is unconvinced by the supposed benefits of a single global regulator, preferring instead to address the new risk management challenges through a combination of practical actions across people, culture, process and technology. Some of the questions we posed could be summarised as "how did we get here?” The survey answers to this showed it is widely accepted that at the market level there has been a failure to correctly risk manage certain instrument types e.g. securitised products and credit derivatives. Our survey found broad agreement on the specific causes. For example, over 83% of respondents agreed or agreed strongly that business priorities had shifted too far to the short term, and over 70% saw the use of similar pricing and risk models and equations across many firms contributed to market volatility. This last trend meant that in good times everyone found these instruments attractive and so demand was high, but once the market turned, demand fell rapidly across the board. Interestingly less than half thought that irrational factors such as shock, a major loss of confidence and herd mentality were significant. This contrasted with the importance of data issues e.g. for underlying instruments or ratings.We have posted more details on the results of this, plus the suggested pragmatic actions, on the MPIE Bulletin LinkedIn group so if you haven’t already joined just follow this link - join our LinkedIn group - so you can get your copy of the full results summary and keep informed of future updates.

Risk and Compliance has been a key area of focus for MPIE since inception of the firm. One of the more recent changes in this area is the increasing formalizing of Operational and Liquidity Risks rather than the more traditional Credit and Market Risk. Although Operational Risk is something that all organisations have to manage in some way, the increasing need for structure and external transparency for this risk has lead to new processes and tools being set up within financial organisations.

In addition to thought leadership work, plus training we have also developed an IT Operational Risk solution. Another area of focus has been around the growth of the data required and how to manage this.