Data loads are expanding rapidly in the financial services (FS) sector as regulations proliferate and more powerful analytical technologies come to market. This is driving a renewed focus on risk data aggregation and reporting (RDAR) solutions, as financial institutions (FIs) seek to collect and integrate trusted data more fully into their business. These days all data is risk data and FIs should treat it as such.
A non-siloed approach is necessary to allow regulators to access capital and collateral data more quickly and run stress test scenarios as required under Basel 3 and national regulations like the US Dodd-Frank Act. Business benefits also accrue for FIs that have good RDAR infrastructures. Better data is not just a compliance process, it delivers pricing, analytical and risk benefits.
The RDAR market is now worth $10.46bn according to Chartis’s separate ‘Global Risk IT Expenditure 2016’ report, which aggregates all of the firm’s 2015 research to derive a global risk IT spend figure and segment breakdowns for 2016 (Figure 1). $4.67bn of the global IT spend on RDAR is for new solutions (45%) v $5.79bn (55%) on maintenance. This is an unusually high figure for new IT spending; most FI technology expenditure customarily goes on ‘keeping the lights on’ maintenance. It reflects the importance that FIs are placing on RDAR solutions and it is replicated across all Tiers.
This report looks at the reasons for investment, examining regulatory and technology drivers for RDAR, and available vendor solutions (see supply side analysis, page 37). Chartis gathered feedback from 104 institutions, involving 30 qualitative face-to-face interviews with FIs and 74 participants in the 2015 Chartis RDAR Systems Survey. The key findings show:
- Only a small minority (7%) of respondents have completely integrated their risk data aggregation and reporting into their enterprise data management (EDM) strategy or chief data officer (CDO) function (Figure 9). More encouragingly, 49% said “partially”.
- Worryingly, only 21% rated unstructured Big Data management as “critical” (7%) or “important” (14%, Figure 13). Considering that 80% of all data in a typical FI is unstructured this research finding puts the spotlight on a major gap in most RDAR initiatives.
- There is a delay in bringing RDAR and BCBS 239 programs to completion. 37.5% of all FIs predicted “2-3 years” to improve data granularity; 21% said “3-5 years”.
The first two findings above suggest a disconnect between the chief risk officer (CRO) and the CDO. Risk and data strategy need to be more closely aligned, especially in the era of unstructured Big Data, but it appears that the vast majority of FIs are still grappling with “small data” integration challenges.
BCBS 239 compliance deadline missed
The crucial regulatory driver on large FIs’ immediate horizon is the (BCBS) 239: Principles for Effective Risk Data Aggregation and Risk Reporting, which are part of Basel 3 and came into force for Global Systemically Important Banks (G-SIBs) on 1 January 2016. The 14 principles, covering data accuracy, timeliness and policy concepts such as governance, could provide an RDAR framework for the future, but none of the banks will meet the deadline.
Not one Tier 1 bank (aka G-SIB) surveyed over summer 2015 said they were “already compliant” with the over-arching principle 1, covering data governance, in BCBS 239.
Only 5% said they would be within 12 months – well past the 1 January 2016 deadline (Figure 5). It is obvious that there is no chance the BCBS 239 deadline will be met. Regulators need a reality check and better understanding of how long compliance will really take.
This report uses Chartis’s RiskTech Quadrant® in the supply side analysis to explain the structure of the market. The RiskTech Quadrant® uses a comprehensive methodology of in-depth independent research and a clear scoring system to explain which technology solutions meet an organization’s needs. The RiskTech Quadrant® does not simply describe one technology option as the best RDAR solution; it has a sophisticated ranking methodology to explain which solutions would be best for specific buyers, depending on their implementation strategies. An example of the Chartis vendor evaluation form is included at the back of the report and a typical RDAR request for proposal (RFP) form from a Tier 1 FI, alongside the full survey results in the appendices.
This report covers the leading vendors offering RDAR solutions, including Asset Control, Axioma, AxiomSL, BearingPoint, BlackRock Solutions, Broadridge, Calypso, ClusterSeven, eFront, Empowered Systems, FICO, FINCAD, Fiserv, GoldenSource, Gresham, IBM, Intellect Design, Luxoft, Markit, Misys, Moody’s Analytics, MSCI, Murex, Numerix, Oracle, Prometeia, Quantifi, Quartet FS, SAP, SAS, SS&C, SunGard, Wolters Kluwer FS and Xenomorph.