Where is Risk Headed?

Last year, we issued a report on trends in commodity risk. This year, I seem to have talked to no end of risk vendors and risk managers as well, culminating in a RadarRadar webinar that I participated in as a panelist last week. As it should be, risk management is high on the agenda. I thought then that I might take a few minutes to outline some risk trends we see from a systems perspective…

1. Everything needs to be more timely. As we saw in our report, obtaining risk reports the morning after is now just not good enough. Markets and events move fast and there is more data. People want to know the impacts on position immediately and so ‘real-time’ risk is emerging as a requirement. Of course, there is no such thing as real-time – just near real-time and, running complex mathematics on an entire corporate portfolio is time-consuming and expensive, which is why event-driven recalculation is one option that some desire. Others look for automated re-calculations every few minutes.
2. More stress testing and simulation. Today, markets are as often moved by geopolitical events as they are by the forces of supply and demand. Historical trends in some markets and commodities have broken down. The unexpected now seems to be the norm – take as an example yesterday’s OPEC+ production cut that surprised many in the market. Of course, risk metrics and models still need to be run but it seems more and more advisable to be running stress tests and simulations on your portfolios to be better prepared for the unexpected.
3. Horses for courses. Lots of systems come with some risk capability and some come with inflated claims. Are the models and analytics really appropriate for the commodity and markets you are trading? Do you understand the weaknesses in your models? Is your credit solution appropriate for commodities? Is your trade surveillance solution capable of spotting market abuse in commodity markets? It pays to sweat the small stuff and understand the risks in your risk systems. Have the right expertise onboard.
4. Enterprise Aggregation. Aggregating risk across different portfolios, commodities, systems, and even departments or companies is becoming increasingly sought after. What is your high-level exposure? So, the ability to aggregate risk data into a single platform combined with the ability to inspect, visualize and query that data quickly, intelligently, and easily is also becoming an increasing need.
5. Respond fast to new needs. Business agility is even more of a requirement than it ever was. Things change so fast. Did you know what your exposure was to Russia or Ukraine? Did you have a country risk capability? Was your credit solution able to cope with the extra liquidity issues post the invasion? Expect this to continue and plan for the unexpected while building agility into your solutions.
6. People. More than ever, people are an area of concern. Hiring and retaining the right talent. Dealing with work from home and yet maintaining a focus on risk. People are central to all issues but in particular risk.

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