In last week’s post, I talked about the need for risk teams to use analytics and modeling so they can leverage data to make decisions. Why is mastering this so critical for capital markets risk leaders? Because getting operational risk management right changes the nature of risk management.
Traditional operational risk management is about measuring the damage and ensuring sufficient capital exists if something really bad happens. Now the emphasis shifts to prevention—the risk of reputational damage, to give one example, is so potentially sudden and far-reaching that averting disaster is far better than mitigating it.
Good use of analytics and data can go far toward developing a preventive approach. It’s called “predictive analytics” for a reason—gathering the right data and applying the right analysis provides trend information that can help predict events. Thus, when a bank sees a trader making an unusual transaction, say, at odd times, or with unusual products or volumes, it can insert an additional approval point into the process to help prevent fraud or abuse. That’s one small example of how capital markets risk leaders can leverage data to become proactive protectors of the business.
Capital markets leaders are stepping in the right direction. Our report shows 42 percent of respondents have data analysis skills within their risk function, 38 percent have data management skills and 37 percent have modeling skills.
I would expect those numbers to rise as capital markets risk executives retool their teams, pushing them toward being a proactive, strategic partner to the business.
For more on how the capital markets risk function is evolving, see this year’s report.