Regulatory compliance and improving operational efficiency are top priorities for bank trading and risk technology groups in the next one to three years, according to a new Coalition Greenwich report – The Next Generation of Bank Trading and Risk Technology.
The report also showed that over 50% of global banks are working to create more modular infrastructures in trading and risk groups
“Banks’ major technology upgrades are directed at remaking the trading and risk systems that run the bank and ensure that banks are in compliance with fast-changing regulations,” says David Easthope, Senior Analyst for Coalition Greenwich Market Structure & Technology and author of the report.
Coalition Greenwich polled 30 senior bank executives overseeing various capital markets trading and risk functions, with a focus on their roadmaps and requirements for technology and vendor relationships.
More than two-thirds say their emphasis for the next several years will be simplifying, consolidating and standardising their IT and operations in order to scale their businesses, as opposed to launching new products and business lines.
In terms of regulatory compliance, bank trading and risk technology groups pointed to the Fundamental Review of the Trading Book (FRTB) along with Interbank Offered Rates (IBOR) transition, MiFID II and Uncleared Margin Rules (UMR) as the biggest challenges and target areas for the next few years.
Moreover, the report found that banks are looking for greater automation of manual processes, particularly of trading desks and risk operations, to streamline operations, increase operating margins and mitigate some risks.
Banks are also looking to bolster the infrastructure for data control. By moving to an internal model method (IMM) approach to calculate capital requirements for market risk, rather than the standardised approach, banks can be much more capital efficient.
However, in order to achieve IMM, they require better data integration and granularity. This explains why both model risk and market risk management initiatives are driving technology spending over the next two to three years.
Other priorities cited are advancing electronic trading capabilities, enhancing technology strategies for trading and risk and, in one case, a wholesale digital transformation as part of a move to omni channel banking.
“The laundry list of regulations impacting banks worldwide will require new or improved technology solutions to ensure ongoing compliance and efficiency,” says Easthope.
Markets Media Europe 2021