The introduction of the Fundamental Review of the Trading Book (FRTB) coupled with the onset of Covid-19 has led to a greater take up of cloud technology as banks rethink their architecture and risk management process, according to a new study- of Risk Management Drives Cloud Adoption, with Some Help from the Pandemic – by Coalition Greenwich.
The FRTB, which is slated to go live next year, requires banks to completely revise the approach for calculating risk-based capital requirements for trading activities.
The study revealed that 67% of commercial and investment banks currently use cloud-deployed data. Meanwhile, three-quarters are doing so in the area of risk management/risk analytics.
Other target areas include market data, quant strategies, back testing and trade execution.
In addition, the research shows that 88% of banks currently deploying cloud-deployed market data services intend to increase their use in the next 12 months.
The report notes, “this comes as no surprise, as information providers and aggregators continue to up the ante of different types of cloud-based information, such as securities pricing and reference data, consolidated data feeds, desktop analytics, index data, investment, and other forms of research across a broad range of client segments. 2
“A perfect storm of decentralised working conditions and the rigorous demands of the new rules has risk teams rethinking legacy systems and on-premises deployments to keep up with an evolving regulatory and work-culture environment,” says Audrey Blater, senior analyst for Coalition Greenwich Market Structure & Technology and author of the report.
The report notes that while there are several clear advantages to cloud technology, existing tech, bank culture and the size of the firm will influence the speed of future adoption.
Banks with a modern infrastructure capable of connecting numerous departments with data sourced across the organisation are in a better position to deal with the rigors of new rules like FRTB.
Many tiers 2 and tier 3 firms will stick with legacy providers and on-premises systems due to a lack of resources, a dearth of talent necessary for managing cloud deployments, and difficulties making the business case for investment in new technology, according to the report.
“Coalition Greenwich sees FRTB as a catalyst for long-term change for those banks that wish to take the plunge into cloud technology,” says Blater.
She adds, “Institutions that only look to outsource FRTB’s calculations without taking a long, hard look at their risk management process will likely become less competitive—a dynamic set to play out in the next two to three years.”
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