An example is model risk management. In more recent discussions, the processes are to be modernized and models subjected to a regular review process over their entire lifecycle. The Target Review of Internal Models is not only a comparism of quantitative results, it also wants to increase qualitative Governance for all models.
Merging of finance and risk through IFRS9
The ECB’s priorities for 2017 also show that it is moving towards modernization, and particularly digitalization in risk management. An initially risk-free topic summarizes these opportunities for risk management: IFRS 9. Originally an accounting issue, IFRS 9 has now moved into risk management because of the calculation of the lifetime credit loss.
Because this is calculated at the level of the financial contract, and because of its future orientation, it results in large amounts of data and requirements for simulation-based work.
This increases the demands on the IT infrastructure, especially if the requirements are also to lead to risk management in real-time, and an integrated risk platform. You need evidence for that? Banks are given more time for EBA Stress Test in 2018 because the industry has asked for that because of IFRS 9!
Risk–IT fit (alignment)
IT must ensure traceability and repeatability, to ensure adequate transfer and comparison between risk and finances. IFRS 9 and EBA Stress Test can be used to develop a sustainable risk infrastructure fit for the Internet of Things era, including new services such as ePayments or confidentiality checks by business partners in online payment procedures.
The time when only manufacturing companies worried about risk management are long gone. Automation and modernization in the field of risk management offer the opportunity for a new infrastructure to be developed for integrated bank management.
This includes not only new processes and organizational structures, but also investments in IT infrastructure for the long term goal of a Risk & Finance Consolidation. Looking ahead, the modernization of risk should be encouraged. But care must also be taken because there is risk in the risk model.