RiskMinds interview: Sell side risk management challenges, the changing needs of buy side risk management, and the opportunities for product innovation

At the recent RiskMinds International event in Barcelona, Mark Findlay (Global Head of Financial Risk Analytics, S&P Global Market Intelligence) was interviewed by the RiskMinds news team on risk management challenges for sell side firms next year, as well as the changing needs of buy side risk management, and the opportunities for risk management product innovation.

Transcription

What challenges do you see for sell side firms next year facing volatile
Markets?

I think for my group within S&P we're definitely looking at XVA as a major challenge for banks, being able to handle the capital impacts on their trading books. Being able to look at calculating CVA (MVA the funding part, Capital being the CVA part). I think all of those RWAs are rising and I think that's a big challenge for banks.

I think linked to that is the initial margin - and being able to project that forward accurately is a big challenge both computationally and quantitatively.

I'd say finally as well, physical collateral linked to that initial margin question is a big challenge and a big concern. We've seen lots of our customers changing CSA agreements to be able to look at securities now as well, being posted as margin. So being able to optimize that is key and I also think that we've seen that amplified recently with the UK pension funding crisis, with gilt yields going up, and I think that's led to a bit of a scramble to look at how those securities are now posted. So helping banks to optimise that is a key challenge and definitely one we're going to be looking at very closely

What's your priority for product innovation and why?

I think you can go in so many different directions, but we always tend to put everything customer centric and customer focused - it sounds very obvious but profitability of our customers, so top line revenue level. We want to be able to help our customers be competitive in terms of advantage, being able to deploy the capital correctly, manage some of the hedges and the risks in their books correctly, and again that will drive that profitability, managing their derivatives value adjustments, I've already mentioned that in terms of XVA. I think that's very key for us as continuing to innovate in that space.

I think also the second part of that is driving the cost down, so the bottom line, using elastic compute cloud capabilities and technology innovation. We've invested a lot of our efforts there - being able to lower that cost of ownership on any solution, I think is key for customers, and also being able to give those solutions and those services very easily via the cloud, where a customer can just log in with a password and they're immediately harnessing those tools and capabilities, and it just takes away the delivery risk and the project risk, and that obviously is always cost. So I think those two elements really help our clients drive profitability.

What's the largest opportunity you see in Risk Management today as a vendor?

In this market I'd say that we've covered off more about the sell side in the last few points and topics, but I think the buy side and buy side risk is definitely a big focus for us and I think it's a big challenge.

You've got an option now where the front office is looking to get closer to risk, or risk is looking to get closer to the front office. Portfolio managers want to be able to look at risks on demand. They want to be able to run complex stress scenarios. They want to be able to do that across every different asset class type, and also they want to be able to do that across some of the new emerging risk factors, whether that be private markets, renewable energy, or even ESG as risk factors, so I think that's something we can definitely explore on how to make the best of that.

S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.