The recent financial crisis has highlighted the deficiencies in the current ad-hoc and fragmented approach to compliance and risk management. The traditional silo-based risk management culture has resulted in multiple point-solutions with multiple databases and standards. Data quality and system performance issues are common problems for most financial institutions. Furthermore, the recent credit crisis coupled with high profile losses and scandals have pushed governance, risk and compliance (GRC) further up the board agenda. Financial institutions are preparing themselves for a raft of risk-based regulations by re-thinking their risk technology strategies and moving towards integrated risk management. Another key trend is the requirement for cost-reduction across all risk technology areas and freezing of IT budgets. This trend of "more with less" is going to dominate the risk technology marketplace for the next few years. Integration and cost reduction initiatives will be high on the agenda of CFOs, CIOs and CROs. This is particularly true within the credit risk management space.
On the demand side of the market, most tier 1 and tier 2 financial institutions in EU, US and Asia-Pacific have completed the first phase of their Basel II implementation and are now working on key Pillar II functionalities such as stress testing and model validation. At the same time financial institutions are looking to gain additional value from their investment in Basel II through better usage of risk data, risk-based performance and integrated compliance. The financial crisis has highlighted key methodological and technological weaknesses in counterparty risk management, integrated credit risk management/reporting and credit risk analytics. Also Chartis has observed increased demand for early-warning systems and risk dashboards as part of the drive for better risk governance.
Basel II is still fuelling demand for credit risk management systems in emerging regions such as Middle-East, Africa, Eastern Europe, Asia-Pacific and Latin America. Financial institutions in these regions have a greater appetite for bundled solutions that combine credit risk management with other key risk systems such as ALM, market risk and operational risk.
On the supply side of the market there are a handful of vendors who are leading the way. These include Algorithmics, Moody's Fermat, SAS and SunGard. The common factor amongst the leaders is the ability to offer multiple solutions across the ERM (enterprise risk management) spectrum and coverage across multiple assets/products. These integrated offerings provide significant value for financial institutions looking for a cost-effective "one-stop-shop" for a range of risk and compliance solutions.
This report is an update to Chartis' 2008 report "Credit Risk Management Systems - Market Analysis". It examines the demand and supply side of the market for credit risk management systems. It covers the key market and regulatory requirements, implementation challenges and the competitive landscape (covering 21 vendors). The report also provides a five-year (2008-2012) expenditure forecast, expenditure priorities, best-practices and a section on measuring economic capital for counterparty risk management.
Detailed vendor profiles are provided for Algorithmics, Oracle Financial Services Software and SAS.