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Tuesday, 10 July 2018 15:35

Analytics powering risk transformation from defence to efficiency

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Global analytics vendor SAS says the CFO and CRO are turning their eyes to the entire enterprise and finding new ways to lead the business through data analytics.

Troy Haines, senior vice-president, SAS, heads the company's Risk Research and Quantitative Solutions group, and explains stress-testing and IFRS9 compliance are the two big areas his team covers, along with research and development, product management, credit scoring, and other risk-related consulting and advice. "Solutions" is a big part of the team's raison d'être, leveraging SAS technologies to build solutions for banks and insurance companies, Haines says.

IFRS9 is an international accounting regulation hitting various parts of the globe at various times. Fundamentally, IFRS9 represents a new way for banks and financial institutions to reserve for loan losses. Haines explains, "it relies on models that produce loss estimates for life-of-loan, meaning long-run loss estimates, conditional on the macro-economic environment. The new accounting regime requires you to have a forward-looking view on the economy so your models have to be constructed and calibrated accordingly.”

While your level of enjoyment from understanding IFRS9 may vary depending on the type of role you have, it's certainly interesting how chief financial officers and chief risk officers have used IFRS9 and similar accounting regulations or risk-related platforms to transform themselves and their companies.

“Previously the CRO was a defensive compliance-oriented role. In the last three years in particular CROs are much more active in how they contribute profitability to banks and financial institutions,” Haines says.

A customer may approach SAS focused on accounting regulation, he explains, but then "nine out of 10 times the customer will ask what else can I do with the technology or my risk platform? What else can I do to help improve how the company is run?"

IFRS9 is a great example of this. It's focused on an accounting regime but, Haines says, "many progressive banks leverage our solution looking for multiple use cases to better manage their risk portfolio and to understand other exposures".

"Scenario-based risk management is not a regulatory concern but is fundamentally a capital planning and allocation exercise that both finance and risk are jointly responsible for."

Paul Franks, financial services director, SAS Australia and New Zealand, adds "Banks, and to an extent insurers, are looking to modernise risk and are coming up with efficiency gains, looking for ways to free up their top talent, and to come up with better ways of managing the business."

Consequently, SAS finds the drive to comply with new regulations is seeing banks and insurers not simply looking to embed technology to solve a specific problem, but to look for better process in general.

"Risk and finance and treasury integration has been talked about for a long time," Haines says, "but in my view is happening now. It was a topic as long as 10 years ago but now we see real practice and applications of that."

When it comes to SAS' core product — analytics — Haines says while some new fintechs or small incubators say they have figured out a new algorithm to make banks rich overnight, the reality is these have not happened, and banks have recognised clear applications of advanced analytics add value to risk managers.

Ultimately, he states, every conversation with CROs will turn to advanced analytics and how to apply machine learning. "SAS has a pretty clear perspective of where that applies in the risk space. At a high level we see applications focused on efficiency and industrialisation, and how you can apply analytics to improve existing processes," he says.

Additionally, institutions seek the ability to run scenarios and for risk committees and boards to have fruitful discussions around ranges of potential outcomes. "It's having the ability to produce outcomes that encourage senior risk committees to have discussions around ‘what if' – we see this as an emerging trend around CFOs and CROs. Looking at new risks like cyber-risks and geo-political risks we see more progressive banks really leveraging our solution to ask and answer these types of questions," he says.

Considering advice for enterprises in general, Haines offers "Not too long ago banks were looking at the idea of choosing best-in-class point solutions. There were potentially dozens, if not hundreds, of point solutions that did not talk to each other, that don't integrate and are proven inefficient. That model has gone out of favour and we have many examples of fairly large banks choosing to simplify their vendor landscape by choosing a handful of key tech vendors and really making those work well.

"Going to a whole-of-enterprise view of risk is a more effective way."

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David M Williams

David has been computing since 1984 where he instantly gravitated to the family Commodore 64. He completed a Bachelor of Computer Science degree from 1990 to 1992, commencing full-time employment as a systems analyst at the end of that year. David subsequently worked as a UNIX Systems Manager, Asia-Pacific technical specialist for an international software company, Business Analyst, IT Manager, and other roles. David has been the Chief Information Officer for national public companies since 2007, delivering IT knowledge and business acumen, seeking to transform the industries within which he works. David is also involved in the user group community, the Australian Computer Society technical advisory boards, and education.

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