Tackling Risk Management Technology Challenges: Front-to-Back Integration of Risk Management Systems

Integration is a hot topic this year for risk professionals. In PRMIA’s 2013 survey of buy-side risk management trends, a lack of front-to-back integration of systems emerged as the second biggest technology challenge, pipped only by the need to create a complete view of risk from multiple risk systems.

Poor integration compromises risk management quality

Why the need for front-to-back integration? The financial and Eurozone crises have highlighted the need to manage risk more proactively and in a more holistic way. If there’s nothing linking risk management systems to the transactional systems used daily to run the business – portfolio management systems, trading systems, policy management systems – the danger is that risk management is something that’s applied to the business in retrospect, rather than actively governing what gets bought and sold at any given moment.

As one respondent to the PRMIA’s survey put it: “Risk has always been a business driver – though a back-seat driver.

What’s more, if transactional systems are divorced not only from risk systems but also from each other, there’s also a danger that the business may miss vital concentration risks – if there is no single view of the organisation’s exposure to a given country, asset class or counterparty, for example.

Lack of integration makes data gathering an arduous task

Perhaps most importantly, running a patchwork of disconnected systems makes it an incredibly arduous task to gather data from them when it’s needed – either for internal risk management or for external regulatory reporting.

We’ve written previously about the challenge of gathering data from disparate systems to perform risk .... One of the problems is that there can be huge differences from system to system, in everything from date formats and taxonomies to the risk categories that different products and assets are assigned to. All of that data needs to be standardised before any kind of meaningful calculation can be performed. 

Another challenge is gathering the data in a timely fashion. What often happens is that when a consolidated risk report needs to be created, data is extracted manually from the different systems into a multitude of spreadsheets, which are then send to Risk for manual re-entry into the calculation engine. As well as creating the potential for huge errors and inconsistencies, this approach also means that if someone is on holiday or sick, vital data may not be received in time.

A third challenge is data quality. With regulators pressing banks and insurers to develop firm-wide risk management systems and controls, firms must be able to demonstrate that they have a data governance framework in place to ensure the data gathered is always traceable, accurate and reliable. Relying on manual validation methods (like emailing people for their approval or to query a data point) is incredibly inefficient and time-consuming – and may not satisfy the regulator, either.

Integration is vital – but it doesn’t need to be a huge IT project

All of these challenges reinforce the need for greater integration between front-office and back-office systems. Fortunately, there’s a quicker and easier way to integrate front and back-office systems than building custom integrations between each one, implementing a central data warehouse, or consolidating on fewer systems across the business.

Many of Europe’s largest banks and insurers are using eFrame© from SecondFloor to orchestrate and automate the collection of data from source systems, and to create an automated data governance framework to ensure the data collected is approved, traceable, and gathered in a timely manner. It’s faster and less disruptive to implement than the more traditional integration methods outlined above, and also means organisations do not have to sacrifice any existing systems.

Find out more

If you’d like to know more about how eFrame© can help with your integration challenges, we’re happy to offer an initial phone consultation free of charge. Call us on +31 (0) 88 26 35 463 or email info@secondfloor.com, and we will be glad to help.

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