The total global expenditure on risk IT systems and services by financial institutions (FIs) will be $70bn during 2016.
The two biggest areas for investment are in the risk governance and integration field ($22.4bn), which is being driven by compliance demands, stress test reporting obligations and risk data aggregation requirements, and financial crime risk, which follows closely behind in terms of growth, as cyber and fraud risks multiply and converge.
The Chartis 2016 Global Risk IT Expenditure report aggregates all of the firm’s 2015 research to derive a global risk IT spend. The market sizing exercise by Chartis is based on a comprehensive bottom up methodology driven by thousands of demand side data points. Furthermore, the analysis has been validated by top-down data from hundreds of technology vendors and consulting firms.
The report provides an overview of the risk technology market and forecasts 2016 expenditure for specific risk categories, examining the regulatory, operational and reputational drivers for different sizes of financial institution (FI) and across different regions. The key findings of the report are:
- There are three main drivers causing FIs to invest $70.27bn in global risk IT during 2016 –regulatory, reputational and operational imperatives. The last is specifically a cost-cutting and efficiency improvement driver as return on equity (RoE) falls and compliance costsrise. The drivers are all interlinked.
- The single biggest category of expenditure is in risk governance and integration ($22.4bn), which includes the subsets of risk data aggregation and reporting and enterprise stress testing. In both subsets compliance and operational imperatives are converging, forcing FIs to invest in better data and modeling.
- In the expanding financial crime risk management (FCRM) space, financial intelligence units (FIUs) are being established to assess combined compliance, fraud and potential cyber threats. Firms are beginning to invest in ‘big data’ analytics, as well as assisted intelligence (AI) techniques. The growing integration of FCRM, operational risk and cyber security is also a key market trend.
- Geographically, Europe is the biggest investor in risk IT, with banking expenditure growing to $16.1bn. North America is also spending in excess of $25bn overall, but its capital markets vertical is the largest proportion of the expenditure.
- The demand drivers in financial services (FS) are strengthening as FIs look to external Software-as-a-Service (SaaS) providers and outsourced financial technology (FinTech) utilities in the cloud to meet their processing and regulatory compliance needs. The traditional ‘internal build’ approach of FIs is weakening as firms seek to cut costs and enhance flexibility, but it still dominates for now. The ‘new vs maintenance’ equation is consequentially changing in FS but again ‘keeping the lights on’ is a priority. However, there is an awareness that FinTech newcomers present a disintermediation threat unless FIs find the money to eliminate silos and thereby improve operational efficiency, while improving customer service, regulatory reporting and flexibility.
- Alignment with data governance and better enterprise risk management structures should ensure that the extra technology money going into the industry is spent wisely. Investment should deliver better risk oversight, reporting and opportunity spotting. A key enabler for this is data integrity and control. Data quality remains the greatest barrier to successful risk technology implementations.
This report is part one of a two part series on Risk IT expenditure. This report is focused on 2016 forecasts. In Q1 2016 Chartis will publish expected growth rates and 2017 forecasts.