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Risk & Finance Integration

December 2009 • Ref RR0911 Research Report
Number of pages: 26 Single user license: Subscription Only
Number of figures and tables: 11    

Overview

The recent financial crisis, intense regulatory activity, substantial competitive pressures, and mushrooming volumes of data in just the last couple of years have created a critical juncture for the financial services industry. This juncture is one in which many institutions find themselves challenged to deploy technology solutions that provide clear, accurate and insightful reporting and analysis capabilities to remain compliant with regulations, develop better processes, and improve decision-making across the enterprise. In this report, Chartis Research explores how the global trend towards alignment of risk management, finance, and operational performance is uncovering both vulnerabilities and opportunities in the way financial institutions do business, and creating opportunities for technology vendors to expand their offerings and achieve long-term growth.

Underlying the trend towards risk and finance integration are both a business agenda and a regulatory agenda that converge to accelerate this trend in 2010 and beyond. Chartis Research conducted a global risk technology survey, and follow-up interviews, as part of its annual RiskTech100 research cycle. We found that while awareness of the need for strategic enterprise risk management (ERM) is strong, most respondents remain concerned by weaknesses in formulating and communicating that strategy. Additionally risk technology expenditures will continue to increase, by 10% or more into 2010. Finally, respondents see key integration challenges in specific risk and finance areas, but believe that finance and risk management integration is critical to their organizations' capacity to recognize trends and events, pro-actively manage response to such events, and exploit new opportunities as they appear. At the same time differences in standards, methodologies, and enforcement practices among the plethora of local, national and international regulatory authorities is creating additional strain on both financial institutions and regulators. Combined with increasing levels and types of regulation, organizations are forced to look for solutions that can provide the necessary enterprise-level view of risk, finance, accounting, compliance and performance management activities.

Financial institutions in the midst of developing strategy for linking finance and risk management should take three key steps to effectively build, deploy and manage the infrastructure and processes: 

1. Reduce reliance on historical indicators

2. Integrate and standardize information systems

3. Embed risk and financial management information throughout the enterprise

Commitment to the integration of finance and risk requires a robust technology platform and tools to support its maintenance and management. Chartis has identified a number of leading practices critical to the design, building, deployment and management of technology solutions to support integrated finance and risk management, including standardizing on a single data model and a cohesive approach to creating business rules for generating warehousing, transforming, analyzing and reporting data. The high-level benefits of deploying such technology solutions include reducing costs associated with technology investment and maintenance of data through automation, improving services through better connectivity and shorter implementation cycles, and enhanced control and data quality. This report presents a sample architecture, data models, and functional requirements to take integrated risk and financial management from discussion of the theoretical to guidelines for actual practice. It also covers the competitive landscape and provides overviews of two case studies for risk and finance integration.