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Impact of Big Data on Different Risk Types

Impact of Big Data on Different Risk Types

By Zenobia

The majority of the advantages and challenges offered by Big Data stem from its massive volume and variety of data generated. However, different risk domains stand to benefit from Big Data technologies in different ways. Big Data can be targeted to your organization’s particular needs – whether they are for greater volume, variety, velocity or veracity – and strategically applied to enhance different risk domains.

Given here is a quick summary of the impact of Big Data on risk management and decision making.

Risk domain Volume Velocity Variety Veracity
Credit risk Very High Very Low Low Very Low
Market risk Medium Low Very Low Very Low
Operational risk Medium Very Low Very Low Low
Compliance risk High Low High High

 

Big Data technologies will allow the development of models that will support everyday Risk Officer Decision-making.Learn more about the how Big Data can help you in Risk Management in our next executive development program, which will be conducted on 21st and 22nd September in Mumbai. Click here to learn more.

  • September, 12th, 2016
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The Top 10 Risks: An Executive Perspective

By Zenobia Sethna

According to a 2015 review of examined bank risk by the Office of the Comptroller of the Currency (OCC), operational risk has overtaken credit risk as the most important risk type, and the LIBOR scandal, product mis-selling, fraud in ETF and securities financing markets in Europe have brought it into the limelight. With further neighbouring disciplines being incorporated into and extending on from operational risk management, as any risk management course would claim, it occupies an enviable position at the core of the modern risk function.

Operational and compliance risks have become more complex and entwined, increasing the potential for failed processes that cause customer confusion and compliance control breakdowns.

Interestingly, board members and C-suite executives across industries perceive the global business environment in 2016 as “somewhat less risky” for organizations than in the past two years, according to consulting firm Protiviti.

The Protiviti survey also identified differing perceptions of the current risk environment between boards of directors and members of the executive team. CEOs and boards of directors were more optimistic about risk issues, while CFOs and chief audit executives perceived a more risky business environment. Given encouraging signs in the economy, there is a noticeable overall shift in focus from macroeconomic risks to operational risks, which had the greatest increase in risk scores compared to 2014.

So, what are the Top 10 risks currently on the minds of board of directors and executives at global firms? Internal challenges like succession, attracting and retaining talent, regulation and cyber security are drawing the most attention, according to the report.

There are growing concerns over operational risk issues, with six of the top 10 risks for CXOs now representing operational issues.

 

Capture

Source: Protivity and North Carolina State University’s ERM Initiative, 2015. (Click on the image to see the image clearly).

 

As the largest financial institutions grapple with how to better recognize, manage and mitigate losses from emerging risks, the takeaway is clear: it is imperative that organizations evolve their operational risk management practices now with future needs in mind.

 

This is a small taste of what you will learn in Management Development Program, operational risk management workshop on 21st to 22nd January, 2016. Learn more about the program here.

  • January, 16th, 2016
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7 Trends in Operations Risk

mastering Operational Risk Management

Human behavior based risk solutions have deficiencies. The aggregate impact of the top 50 operational loss events is estimated to be $60bn over a 12 month period. The notable cases over the past decade include the 2008 SocGen case due to unidirectional positioning and unsuitable investments in complex derivatives by JP Morgan, UBS and others in 2012.

 

Consequently, a safe financial institution now is not one which takes no risks or is risk-compliant, but one which isWord Cloud "Big Data" organizationally and technologically able to withstand the crises of the future. “Big data” and “big analytics” are rapidly being applied to enterprise risk, compliance and governance across all industry sectors. Recent settlements related to questionable business practices have further heightened interest in the management of operational risk at financial institutions. In addition to the above, the global slowdown has necessitated higher efficiency and lower costs. Thus, the past twelve months saw accelerated growth in big data analytics based integrated risk, compliance and governance solutions.

 

 

Here are the 7 trends to watch this year in this domain:

7 points
1. 2016 will continue to see a shift towards automated reporting and risk data aggregation to meet global regulatory standards. Further, the ongoing slowdown ensures that these governance, risk and data management practices will be outsourced.

 

 

2. Agile risk management solutions are the key for the sell-side to combat increased regulatory pressure, capital scarcity and time constraints. Hence, the sell-side needs to gear up with integrated solutions that enable optimization, limits management, margin simulations, liquidity and market risk management, stress testing and model risk management, data management and visualized reporting.

 
3. The buy-side continues to play a pivotal role in the financial system. Thus, face risk, governance and compliance requirements at par with banks. Integrated on-demand, nimble and bespoke solutions across asset classes are the solution.

 
4. The financial crime and cyber threats areas face a similar situation due to increased regulation. Here as well, the rise of integrated and aligned risk and compliance solutions will be essential to combat financial crime risks.

 
5. IFRS 9 will push financial institutions to perform more complex calculations. This in turn will require more extensive use of risk data and consequent investment in areas of event based accounting, real time cash flows and multi GAAP ledger functionality.

 
6. Stress testing models failed to spot 2008. Integrated enterprise wide stress testing and modeling will be necessary to reduce model risk. Key problem areas to overcome are alignment methodologies, information technology infrastructure and governance.

 
7. The energy trading market will shift towards network and generation based markets and away from the commodities trading market place. Thus, unique risk management systems for energy trading and logistics focused commodities trading will gain importance.

 

This is a small taste of what you will learn in Management Development Program, operational risk management workshop on 21st to 22nd January, 2016. Learn more about the program here.

  • December, 30th, 2015
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