sascom voices - The sascom magazine blog

Recent research conducted by the Economist Intelligence Unit on behalf of SAS illustrates both the scope of the proposed reforms and the scale of the challenge ahead in risk management. In March 2009, the Economist Intelligence Unit conducted a global survey of 334 senior financial services professionals, of whom 50 percent were C-level and all have responsibility for risk. The unit than carried out a programme of interviews with high-profile commentators including Alan Greenspan, former chairman of the Federal Reserve; Nassim Taleb, author of The Black Swan; and Peter Bernstein, founder of Peter L Bernstein Inc.

The new report, After the Storm: A new era for risk management in financial services, written by Phil Davis brings these two strands of research together.

When we started discussing the research process in January our main concern was to pluck subjects that would stay in the public domain from the middle of 2009 and beyond. As the popular media became risk experts overnight, this was going to be a challenge. We wanted especially to have Phil Davis interview key players in the financial market who would offer insight on the future direction of risk management, no mean feat in a very uncertain and fluid economic situation.

So at the start, the challenge was not so much operating with a crystal ball on the financial world, rather wondering whether the ball would be in play at all. In the end the survey gave us an excellent understanding of where financial services companies see the present situation and a view of the future.

With the global political focus remaining on re-establishing the creditability and integrity of financial services (at a local and global level), one of the most intriguing elements to come out of the survey was the lack of confidence the financial services community had in those (rating and regulatory) agencies tasked with benchmarking and challenging their approach to risk management. But many risk analysts did not have the culture to challenge their firms' management to act on any blind spots in their approach to risk management that the risk team had identified. Alan Greenspan did make the point when interviewed by Phil:

The important lesson is that bank regulators cannot fully or accurately forecast whether, for example, sub-prime mortgages will turn toxic, or a particular tranche of a collateralized debt obligation will default, or even if the financial system will seize up. A large fraction of such difficult forecasts will invariably be proved wrong.

So we expect to see, in the near future, the recommendations that will take us in to a new era of global financial services, certainly around areas of (systemic, liquidity, stress testing, firm wide, Credit, Market and Operational) risk and capital management, regulated by the various governments and their agencies. Business confidence will be restored, slowly, but will lessons be learned and practical, appropriate measures implemented, at country, regional and global level?

How much time should be devoted to preparing for an important challenge? Depends on the challenge, I hear you say.

From my experience, it is important to be aware of the challenges to be confronted when completing a significant project. Not under-estimating the real effort required, often depends on fitness levels, access to the right tools and prior knowledge or experience of completing such tasks.

I recently finished a charity bike ride, taking the W2W route 20 across 151 miles of some of the most stunning parts of Northern England’s country side. I have completed a number of these bike rides and each time I have experienced one of these challenges I have become a little bit more prepared for the next one: more fit, better equipped, wise to the needs of what the occasional cyclist should expect on a long distance run (normal training is limited to 20-30 miles or 48.28 to 32.18 kilometers). However, it always amazes me that less experienced (lets read younger) guys see no need to train and then are shocked to be left behind after the first hill or the first 20 miles or so (look out for a new bike ride challenge at the end of this blog).