Can your risk engine keep pace?
August 3, 2018
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August 3, 2018
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IBM recently announced its acquisition of Armanta, a provider of aggregation and analytics software to financial services firms. Armanta’s technology platform allows financial institutions to aggregate data across multiple systems in near real-time speed. We caught up with Peter Chirlian, CEO of Armanta, an IBM Company, to tell us more about Armanta’s innovative approach to aggregation and risk analytics.
Let me start by asking about the risk management challenges that financial institutions face. What do they need to address these concerns?
Financial institutions have multiple, complex, and interconnected challenges. They need better insight that can drive decision-making tactically and at the strategic management level. For example, they need to be able to consider multiple scenarios around failure of counterparties including the impact on market risk and liquidity as well as on regulatory measures. They need to be able to manage upstream data issues, such as creating new aggregations from the results of a prior set. Users need to be empowered to ask the unforeseen questions and to define new sets of calculations.
They also face enormous regulatory pressure from rules such as FRTB, SACCR, LCR, NSFR, IFRS9/17, stress testing, and local regulations. For example, to effectively manage FRTB, a bank must have tools that enable them to optimize trading desk structure, understand the capital impact of a desk being moved between Internal and Standardized Models and see the impact of a potential modification of regulatory constants. In addition, end-users need to be able to perform what-if analysis that range from simple to complex. Analyses can be as simple as a proposed trade or as complex as a potential change to an institution’s corporate structure. In all cases, users want to understand impacts to market, credit, liquidity, regulatory measures and establish optimal and efficient hedge implementation.
Aggregation is often floated as an analytics technique that can address these challenges. Can you tell us more about aggregation?
Well, let me first say that I don’t like the word “aggregation!” Or, at least I don’t like it as a description of what our technology is bringing to IBM. Powerful risk analysis requires so much more than just aggregation and reporting. It requires innovative technology that enables real-time decision-making, accurate, up-to-the-minute reporting, and the ability to test scenarios and iteratively ask new questions after getting a set of answers.
OK, that’s a bold statement! So, why isn’t aggregation sufficient?
Financial Institutions need to be able to aggregate on demand. Most solutions work with pre-aggregated results, which are not sufficient for today’s complex and interconnected requirements. The use of pre-aggregated results is based on the assumption that users know the questions before they ask them. In reality, as users go about the analysis process, they will uncover unforeseen information that requires completely new paths of investigation. They will want to do more than make decisions based on a fixed set of pre-aggregated results.
What innovation enables the Armanta solution to provide more than just aggregation?
Armanta brings together a host of capabilities that really changes the analysis landscape. By combining grid computing, in-memory caching and calculation, a fully distributed dependency mechanism, and powerful, real-time visualization, significantly more complex and granular analysis are possible. We have harnessed these capabilities to address the needs of today’s financial institutions, so they are not limited to pre-aggregated results or faced with lengthy waits for query responses. Users are empowered to look at information across typical silos and design the sets of analyses that are demanded in the moment. Enterprise-scale what-if is possible making it straightforward to understand impacts to broad sets of measures at any level of the organization.
Users have complete flexibility to look at the data in any way required. They can even add new calculations on-the-fly and incorporate these results into their views immediately. Importantly, our technology enables them to do sandboxing and extensive what-if analysis Combine all this with full access to granular data, and the result is a platform for relevant and actionable insights rather than just reports.
But what makes our next-generation technology different—and more useful—is that it delivers these advantages in an enterprise setting. Now users don’t have to know the question before they get the answers; they can get answers and ask new ones as they go. This is critical for financial institutions today.
So finally, how would you summarize what this innovative “beyond aggregation” approach brings to IBM and our clients?
Financial institutions have a complex set of challenges that do not exist in silos. Our solution empowers them to gather data from multiple sources, collaborate with colleagues across the organization, and do analysis on demand and in real-time, all without being restricted by pre-aggregated results. Armed with that kind of analytics, financial institutions will find that challenges are easier to overcome.