This is a transcript of our interview with David Rogers, Global Product Marketing at SAS
You can watch the original video interview here
Boris: Hello ladies and gentlemen and welcome to our interview with David Rogers. David is a Global Product Marketing Manager covering risk management solutions and technology delivered to financial services, energy and utilities verticals for SAS. SAS is the leading global analytics company with 40 years of experience spread across all key sectors such as health, government, utilities and financial services.
David, thank you for taking your time and coming to our virtual interview today.
David: Thank you, Boris.
Boris: Because SAS is such a huge company, we won’t be able to address the whole spectrum of what you do, but we rather concentrate on the risk modeling and decisioning as well as the model governments in our digital future, especially the impact of COVID-19 as a driver to the new operating reality. David, you have been with SAS for many years, could you explain perhaps, what is your main focus right now?
David: Yes, Boris. Thank you for that introduction. Yes, I mean within the context of risk management and SAS’ role in that space, we’re looking at it as SAS’ part of our global initiative.
SAS has a dedicated line of business function to cover risk and we have been in this market for a long time and then we have also developed the overall knowledge that any business that’s going to drive its risk management function that’s based on the data that they require and then the function of building models and analytics that will eventually become the decisioning, whether it’s based on the business requirement or regulatory requirement.
So discover the revolution in risk is kind of an ongoing aspect whether you’re talking about the context of credit, market, operation risk, GRC. These are obviously key areas that SAS has a particular involvement in. I would say that obviously, clear to everybody on the call, regulation has been a key driver to the way we are responding to the requirements of the firms in risk management.
But I would also say just in the overall context of risk, as a topic, we look at it as a specific area that we can develop new ideas from. So it isn’t just driven by the regulatory bodies’ specific statements, we see the opportunity to develop it as a distinct function and also deliver on the key areas of development.
Just a little bit illustration of what I’m kind of pointing to in that. So in context, if we’re talking about it in banking, obviously the BASEL regulations being the key driver, risk weight calculations. More recently, the regulation around IFRS9 and CECL and ultimately keeping that in the context, these are driving developments.
So these aren’t just specifically just driving to the final report. There are under pinnings to make these kinds of processes function. In SAS sees it in its entirety. So we are not just seeing it as just as individual projects. And just to sort of round off that comment, we also see this as you kind of introduce this to in terms of insurance, energy, utility. So while financial services is a key core part of our business, we can see that risk modeling in a way that’s being developed has an application across all businesses at the same time.
Boris: So we are currently in the midst of a major crisis and the most disruptive period to our society in the peacetime history. The impact on public and our health care system has been devastating and our economy is facing a prospective recession much deeper than the financial crisis of 10 years ago. The disruption has called into question the effectiveness of currently deployed models and need to assess and take action with impact on the businesses especially around credit risk models in financial services. David, what are the main challenges for your clients that you see right now and how is SAS helping your clients to deal with COVID-19 reality.
David: Yes, as I mentioned. I mean where SAS is involved in banks globally, obviously the response to COVID is a mixture of different aspects. So you’ve got the government impact. The government responses to what is happening to their financial markets and what is happening to their populations. We have individual banks both locally and globally essentially looking at how their underlying models there and underlying systems that they’re using to help make their decision whether it’s based on originations collections, how they’re functioning.
So there’s already basic need directly now to appraise where they are. SAS is assisting both in terms of offering support to help them understand what they can change, what their calibration options are. Also help in terms of supporting, offering facilities, a lot of them to come out of there, say, day to day operation and be able to take data in to their format, they can look at the portfolios, make a clean understanding of what their positions are, what the portfolio positions are and then give that information back into the business to build out a more informed response.
We realize that this is a situation which is changing almost daily so wherever we see, today we have to be looking to be responsive to give our clients the ability to build out that understanding of their models at the same time I think also what’s key is that it’s the planning that will go alongside this to check the whole environment forward.
So within the SAS world what we just will talk about in terms of the modeling underlying modeling technology I think one of the key areas of development that’s occurred or certainly over the last four or five years and to some extent is being a regulatory response is to have that model inventory in place so you can make materials decisions, so you can make a view of what your way you should focus your energies because obviously that’s going to be key to a being able to deal with the initial response so which models are no longer functioning, which ones are you going to have to build replacement scorecards for what are rules decisioning policy changes are you going to have to put in place. These are all immediate decisions.
Now they can’t wait for anything that’s going to, from an infrastructure point of view, quotes make things better. However, over the time period, coming weeks, coming months, there’ll be a shift away from the immediate crisis and then a need to better understand how to model their business, how to model decision go as you say from a credit point of view you’re going to have to deal with defaults and collections processes.
The data that was driving your models originally, certainly in the short term is not going to be there and it’s not going to be consistent, not going to be able to be functioning as far as the data the models that were in place that they will depend upon it.
Secondly, the alternatives will be to look at data sets that previously you might be considering as a future source to model from. That’s something now and present to consider what data sets will be used, what sort of alternative are you going to be able to utilize not only just to calibrate but to understand what your business decisions can be based on. So I think there’s a whole series of events, based events going forward.
Certainly, the customers are keen to have SAS provide intelligence, understanding, advice, how to respond in the immediate crisis but also respond over time. So understand better how to organize the underlying models and business rules, how to understand the planning.
So, I guess an interesting, sort of additional point is that over the last five or six years, stress testing has been a particular area of interest. But not necessarily being a while it’s been center stage for regulatory bodies. Maybe it’s been much more of a planning/once a year activity still for many banks.
Clearly, scenario analysis and stress testing now has a much more immediate need so that banks in or in any organization can look forward in terms of what investments, what kind of scenarios they will need to take into consideration and especially as microeconomic data is changing so you need that flexibility to look against. So what was true today may not be true in a week’s time. So I think there’s an awful lot of moving parts. A lot of what we’re helping with is to try and help to concentrate and give information and knowledge to be able to make better decisions going forward.
Boris: Alright. A decade or even less ago there were only big companies like SAS, IBM and maybe couple of others serve in the market while in the last couple of years, we have seen hundreds of new fintech/regteck companies trying to win the market. What companies will emerge in a better shape from this crisis and what opportunities exist for both new regtech/fintech companies and for the incumbent in the current environment.
David: I think there are a number of different factors that play for the fintech community. Certainly those who are already part or established parts of an existing banking infrastructure so a larger bank is utilizing them in some context, it should be well placed to write out the initial financial storm.
I mean some will get, some will be get swept away just by the fact that the funding is no longer present to support them. But the opportunity is there, obviously in the context of what I mentioned earlier in terms of alternative.
Those who have come along in our digital platform and has established this platform and I think the key in this area is having is having the experience. I think a lot of times these statements are made about digitization, about the automation and deployment. It doesn’t really fully encompass what the issues are.
I mean the issues are as much people based as they are technology based. So you have to understand how this technology are going to be applied. In the case of those who are already established, those who have got in place their digital platforms and have the ability to pull alternative data, I think they have a significant head-start certainly in terms of adapting to the new situation, in terms of understanding what their alternative can be and then planning that in terms of, not just in terms of the underlying models but just having that alternative way of pulling information in and utilizing it.
The speed of response, I think, is going to be key so that in timeline I mentioned earlier but there is a period of time when organizations typically were willing and able to take anything between let’s say 3-12 months to effectively to reorganize their business models and the process for product development and then ultimate deployment but that timeline is no longer there.
So new incumbent and fintech’s obviously have come into the market with the ability to reduce that time. They still need the knowledge and the experience to run alongside that so I think you got to have a much more complete understanding to get the best out of this situation.
So it isn’t just technology-based, it isn’t just organization and then for service-based, it’s bringing the two parts together. I think that will be, the companies that have that in place will survive and come out and be successful. I mean, it’s already a point of view but certainly they will see over the next 2-3 months who comes out initially as having not just survive but has prospered. Because while we’re dealing with this genuine situation, people are prospering. Organizations will see where they can take the opportunity and they will use their models in their scenario analysis to understand where to invest and where to put their capital for development.
Boris: What are the major trends in the risk modeling decision in space and what we should expect from you guys in the future?
David: So this is an area in the world of risk where SAS has been active well since SAS was launched in 1976. So it’s an area of development where most recently with the introduction of new methodologies by machine learning, the introduction of the cloud, there are, those kind of technology enabler us are now opening up the potential for the analytical environments that SAS is providing as part of the modeling environments.
What that means in practice is this, this is opening up analytics to a much wider group of organizations so and not it is also, I would say, it’s the frequency and the time to deployment for any number of organizations that in the past, this might have been a preserve of the tier one. It may be something our organization would only go to for a third party, a consulting firm and not see as part of the integral part of the business.
Also, think about it in the context of IP. So a lot of times, the IP that is driving the business is integral to the models. So increasingly, the opportunity to have much more control over your models and the deployment of them is going to be key to the success of your business. So where SAS is now moving its capability both in terms of the risk modeling piece and how it then functions as part of the decisioning is I think becoming much more available to sort of more medium, smaller organizations.
I mean, the need is to have that flexibility in your decisioning, so the segmentation, your approach to the market, the type of markets you’re going to. So, some markets don’t lend themselves necessarily to the type of automation that’s being sort of well deployed in terms of consumer. But it will be in increasingly. I mean, especially once more of the data sets. So more the alternative data sources become more readily available and the flexibility that people need from their models has started to improve again.
That will make a big difference in the way that you deploy use models in the future. So it’s a combination of having access to the technology, understanding how to use it. So we mentioned earlier about education about enablement and then also then the time to deployment. So the time to take your idea, develop the model and then put it into the operational environment that actually is making the decisions or helping you make the decisions in your business. So this is becoming much more I think available to smaller organizations.
Boris: Alright, fantastic. Where do you see the position of risk management as a function during this time and also in the medium to longer term as they deal with pandemic impact and the business regulatory landscapes around the globe?
David: I think people are much clearly driven by the regulators. The investment in regulation and compliance has been a key part of where banks have had to and any firms of how to invest, whether that’s truly risk management is an interesting conversation, especially if you’re a quant or you were one of the modelers.
Often, you can see the opportunity but you tend to be limited as to what that opportunity can offer. I think as I said earlier, with the kind of introduction of cloud-based analytics and the introduction of these newer models, especially raw machine learning. Although, it’s not the most exciting part of the equation, what drives, or what maybe is the block to many opportunities to use analytics is the data.
Machine learning is giving us the opportunity to better analyzing the underlying data. Whether it’s cleaning it, analyzing it, supporting it in terms of delivering the standard models that are getting deployed. So I think like any development, like any kind of technological advance, certain aspects that have to come together to be able to fully embrace it and fully exploit it. I think these elements in the cloud, these elements of new techniques and analytics.
Also, as I sort of mentioned before, the education of people who are going to drive that, I mean, if you don’t have the people who understand it and then be able to deploy it, then you’re not going to get the full benefit of it. So I think that is going to be a key driver. So how people invest in the development of those individuals are going to be key to getting the success that we’re talking about.
Boris: Alright, thank you for your insight. The last question, how we at Global Risk Community can contribute to the process of a better understanding of this complex world of risk from your point of view?
David: I think the key is actually engagement. It’s sort of mentioned before - education, engagement, peer conversation. The more people talk on a topic, the more it’s understood, the more it’s challenged, the more it drives forward.
So I think seeing my career, some of the best times is when I meet other practitioners, people who are thinking about the future, thinking about how to take what we do today and produce better results, produce interesting results and then offer that to our risk community and explaining that as a process and then with the kind of community that you’re representing, that’s also key.
I mean if people have multiple platforms to talk on but within the specialization of risk, it’s important that information comes together and then it gets disseminated and talked about. So I know there are many channels under which that takes place but risk is to some extent only now becoming more formalized perhaps when you compare to finance, for example. There’s still many aspects of risk which is probably thought of as more than an art than a science.
But I think that’s the beauty of risk management. I think what attracts it to people who come into it and perhaps as you kind of mentioned before about the impact of risk regulation and compliance. I think we’d gone through that long period where regulation had been clearly center staged to some extent where we were starting to come out of it before the COVID crisis where people would start thinking more about, “I’ve got all this data, I’ve got these capabilities, new machine learning models, AI models.”
I’ve got this opportunity to do something different. I can use it, be more clever on how I segment, be more clever at how I plan my balance sheet. To a degree, to some extent , you might argue that COVD should accelerate that because this is not about regulation. This is all about understanding, building a better forward-looking view, predictive analytics if you want but a forward-looking view.
The short-term is the here and now, we have to solve the problem today. But the future is based on the idea that you should innovate and you should look and use data in a way that’s more creative within the bounds that are allowed by GDPR and all other regulations. I think it is an opportunity in a sense maybe risk management, COVID’s given risk management the opportunity to show what it can do.
Boris: Okay, thank you. David, I wish you great success with your future plans. I’m sure that our audience will be glad to view this interview with you. Thank you for visiting us today.
David: Thank you , Boris. Have a good day.