‘New Risk Management’ Needs Accurate Data

Two weeks ago I questioned what form a ‘new risk
management’ would take and how far the industry is rallied around the 2010 GARP
Risk theme of “Transforming Risk into a new world order”. I had hoped
that the convention would reveal risk managers finally beginning to
understand the vital role data management plays in helping untangle messy
internal processes – and at last I wasn’t disappointed.

Of course
data is important. Virtually all processes drive off common and shared
data sets and garbage in
equals garbage out. There’s nothing like a full blown crisis to make financial
institutions reassess what they really need and what they really need to do.
In recognizing that they must have a fully comprehensive understanding of
all the instruments (debt) they hold, and of all related information on
customers, counterparties, issuers and collateral, financial institutions are
now investing properly in something they should have prioritized long ago –
foundational infrastructure.

Fueled by
risk management initiatives, major buy-side firms are embracing the concept of
centralized data with new rigour. Recent projects are extending and linking
siloed security databases, across customers, counterparties, instruments and
transactions. This way they are enabling rapid valuation of even the most complex
instruments. These projects often extend to collateral management, where an
enterprise-level view of data makes it easier to prove that debts are
adequately covered.

With a view
of both exposure to risk and the collateral which can be offset against that
risk, firms can begin to regain trust from both customers and investors. This
has got to be the best outcome from the current situation. And in future, this
new level of transparency will provide much needed protection to companies when
the markets turn sour again.