Analytics for risk and finance - bridging the gap

Integration of risk and finance systems has been one of the key themes for large transformation programmes seen in the banking industry in the recent past. This has primarily been driven by the need to have an enterprise-wide perspective on risk, finance and performance measurement. The new regulatory landscape and the changing business dynamics characterised by increasing complexity and uncertainty, underscore the need to have a holistic view of risks and their impact on the bank’s profitability, liquidity, capital and solvency. Risk management has thus been propelled from being a support function to one having critical links with business planning, strategy, balance sheet management and performance measurement.

An integrated and cohesive architecture for risk and finance not only brings in operational efficiency through standardization and simplification of processes and systems, but also ensures data consistency and flow of data among various business functions. Besides serving as a common repository of data for enterprise-wide reporting, the integrated architecture serves the business needs of risk-based capital allocation, performance measurement, risk-based pricing, stress testing, contingency funding, capital planning and balance sheet management strategies.

Some of the key elements of the integrated architecture are: a robust data management platform, building of necessary interfaces among various risk and finance systems and a common business intelligence framework.

A robust data management platform forms the core of the architecture. In order to be effective, the data platform should support master data management, data quality checks and reconciliations. A comprehensive banking data model that can meet diverse reporting and analytical requirements across business functions is an integral part of the architecture. In terms of technology, there is a growing expectation to provide near real-time measures of risk and performance at a granular level.

Designing the right interfaces among the risk and finance systems ensures that various business functions get the relevant data required for decision making. This brings forth a holistic appreciation of the interplay of risks, capital, liquidity and profitability. The insight available through the integrated framework is of immense value in capital adequacy assessment, capital planning and overall balance sheet planning besides being useful in measurement of financial performance.

A common business intelligence layer that brings together the output from different analytical engines helps to get an enterprise-wide view and ensures consistency in reporting across regulatory, statutory and internal stakeholders.

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About the Author

Ashok Tiwari is a Senior Architect, with a focus on Banking Products & Emerging Markets. He comes with 15 years of experience in banking and IT consulting covering enterprise risk management, Basel II & III, performance management, risk and finance transformation, business intelligence and analytics.

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