Sell-side to invest in risk management amid regulatory challenges and risk events

Rick Steves

35% of senior market risk executives surveyed expect their firms to increase headcount while 86% are planning to deploy new systems to support their changing approach.

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The sell-side is increasing headcount and investing in market risk to meet new regulatory and operational challenges, according to a study conducted by Acuiti and commissioned by KRM22.

Acuiti surveyed top market risk executives across the sell-side and found that half of the respondents increased staffing levels over the last 18 months with 7% reporting a significant increase.

Sell-side to deal with Fundamental Review of the Trading Book (FRTB)

Greater automation and nearer real-time views of risk exposures have also become attractive assets for the sell-side amid the ongoing implementation of the Fundamental Review of the Trading Book (FRTB).

2022 is likely to see a significant change in risk management across the sell-side, with only 14% of respondents expecting to maintain the same approach to market risk management over the next 12 months. In the opposite way, 41% of participants said they plan a significant overhaul.

Loss prevention and the anticipation of a major risk event are driving change as well as regulatory pressure reflecting the introduction of FRTB.

Sell-side firms will be investing in both headcount and technology in market risk over the next 12 months, according to Acuiti, which has spoken to senior market risk executives, with 35% expecting to increase headcount while 86% are planning to deploy new systems to support their changing approach.

Dave Zurkowski, Head of Market Risk at KRM22, said: “For the last 10 years firms have channeled investment into Compliance functions to address increased regulation following the Financial Crisis. More recently, with major events such as the COVID-19 pandemic, firms are recognising the need to shift some of this focus toward Market Risk, moving away from legacy platforms and disparate processes.

“Firms are seeking to deploy technology solutions that perform during times of high stress and bring together risk metrics across business units, providing insights that ultimately improve the customer experience. KRM22 is addressing these challenges through our Global Risk Platform, bringing together data from across the firm to enable better, more informed decision making across the organisation.”

Will Mitting, managing director of Acuiti, said: “Expectations of volatility throughout 2022 are high as multiple factors from international politics to localised inflation in major markets raise the prospect of major shocks to equity and fixed income markets.

“Following a period that has seen several high-profile defaults and unprecedented market volatility, market risk has shot up the agenda for the sell-side. This was shown in the KRM22 Capital Markets Risk Sentiment Index, released in Q4 2021, which found that market risk was the highest priority for banks and the second highest priority overall.”

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