For quite a while, we have been suggesting that advanced risk analytics and enterprise risk management platforms should be benefiting from industry trends.
It is a truism that many CTRM and CM solutions are not very strong in the area of risk management – some are but most are offering fairly rudimentary risk reporting and a little limits management-type functionality. That is why more specialist risk vendors like Lacima, Kyos, Cubelogic and so on, exist and have had longevity in the market. Yet, in the past, for many firms, a form of rudimentary risk management embedded in their CTRM supplemented by some spreadsheets or libraries of risk analytics, really was sufficient for most purposes.
The last few years though have seen lots of change and volatility. There is significantly more interest from stakeholders and regulators in ensuring that firms do proper risk management. The range of risk management has also expanded and continues to do so beyond price risk and credit and into operational risks through supply chains, legal risks, geopolitical risks, regulatory risk and now of course, carbon and ESG risks. Proper risk management is now an essential (if it ever really were not) aspect of any firm’s business if it is exposed to commodities as an asset class – and particularly if exposed to commodity supply chains.
This has seen the emergence of much more sophisticated risk analytics in commodities – often via the risk specialists like Kyos, Lacima, Cubelogic and so on as mentioned above. However, it has brought other players into the frame like Beacon and FIS with its Adaptiv software, Tradesparent, Quantifi and other like Topaz Technology who have focused more on the ‘RM’ than such vendors might have done in the past. Other vendors like EKA, have also focused more on providing analytics as well. ION OpenLink also has a robust risk aspect to it and its FEA analytics remain popular while Numerix offers choice. Interestingly, we also see CTRM and CM vendors addressing risk management like Brady, Contigo, Enuit, Gen10 and others, to add deeper functionality and more sophisticated risk metrics.
In fact, we see two areas emerging. The first is commodity advanced risk analytics where the vendor offers more complex analytical solutions for specific issues related to commodities. Such analytics take in the entire array from valuation to credit and beyond. The second area is the enterprise risk platform in which data is brought in from disparate underlying systems and solutions into a common repository where further risk analysis and reporting can be performed at the level of the enterprise. Plainly, some solutions provide both whereas other solutions fit better into one category or the other. An overlapping trend that impacts CTRM and CM as well is the increasing need to have risk and other calculations performed in near real time and a marked move away from the overnight batch processing of the past.
Current market conditions with increased political and geopolitical risks, logistics and supply chain issues, workforce shortages and rising and volatile prices only accentuate this trend in risk software and we do expect to see both these application areas emerge faster in the coming months and years often as a part of an ecosystem of deep vertical and wide horizontal functionalities. We also expect to see the emergence of other vendors and solution either from other asset classes or as start ups. The market for risk analytics and solutions appears to be in for some serious growth and we will be following developments closely.