Risk, Regulation and Resourcefulness?

“One third of CIOs reported no change in their budget from 2008, while 46 percent reported a slight increase, and 21 percent reported a cut in IT budgets” [1].

Most businesses are facing flat or only slight increases in budgets according to this recent Gartner report and yet this month the FSA announced its plan to change its rules governing liquidity, which are expected to come into force in November. It revealed that “the FSA sees its proposals as far-reaching and believes that many institutions will need to reshape their business model significantly over the next few years as a result”[2].

So how can financial institutions implement these requirements in the face of flat budgets? We think that CIOs are facing the 3Rs challenge this year: risk, regulation & resourcefulness.

Intelligent businesses and their CIOs already acknowledge the seriousness of the situation, but are not paralysed by it. Surely this is not the time to do nothing but the time to seize the opportunity to restructure, to modernise the bank’s systems and to ensure the simple things are done better? Perhaps it’s an appropriate moment to consider the following:

v  Taking a holistic view; risk cannot be successfully managed from within an asset class or geographical location. Diversification is a major plank of liquidity risk mitigation strategy, requiring a sophisticated and pro-active approach.

v  Consolidate liquidity risk management across the businesses as well as time buckets. Too many discontinuities still exist across major maturity bands.

v  A predictive, real-time approach. Reconciliation has to be faster and smarter; end of day just isn’t soon enough any more, as demand for intra-day reporting grows.

v  A more aggressive regulatory stance, requiring a stronger emphasis on stress-testing as well as credible contingency planning for "outlier" events. 

With budgets hardly moving, it will be the competent and responsive companies which make it through the year and also meet their regulatory requirements. The events of the past few months have raised the issue of liquidity to the top. Adapting the bank to meet these new requirements will be the challenge this year. 2009 won’t be a year of growth, but it will have to be one of intelligence, resourcefulness and agility.

Graham Underwood, Managing Director, GFT UK

[1] Mark McDonald, Group Vice President and Head of Research, Gartner EXP.

[2] FSA consultation on strengthening liquidity standards – January 2009