Majority of risk professionals only ‘somewhat prepared’ for next market shock, finds report

The aggregation of all the data necessary for managing the risk of firms’ portfolios was highlighted as the top challenge among risk professionals.

Less than half (37%) of risk professionals say they are prepared to manage risk tied to the next market shock, a new report from Coalition Greenwich has found.

Surveyed risk professionals were nearly split in their responses to feeling either confident or somewhat confident with their risk management processes during normal market conditions.

However, looking at future market shocks, 37% said they are prepared, while the majority (61%) said they were somewhat prepared. Only 2% of surveyed risk professionals said they were not prepared at all.

Confidence in risk management practices plays an important role in the survey’s findings, according to Coalition Greenwich.

In its report, Coalition Greenwich stated that risk professionals on both sides of the market are less confident about the metrics they are using to analyse risk, even in typical market environments.

A large portion of managers are only somewhat confident when measuring value-at-risk (VAR), exposures and liquidity across several asset classes and products.

Looking at the top challenges in risk management processes, the aggregation of all the data necessary for managing the risk of firms’ portfolios was highlighted as the biggest concern (45%); looking at multiple systems to get an overall picture of risk was noted as being another issue (39%); while the complexity and manual nature of building scenarios rounded up the top three biggest challenges in risk management processes (32%).

Professionals who are confident with their risk management practices still struggle to aggregate the necessary data to support comprehensive analysis of risk exposure, due to risk data being siloed and challenging to combine, which ultimately results in inefficiencies, the survey found.

Elsewhere, it was noted that some risk managers still rely on multiple, disparate systems to view risk across all their books, with some instances where they can’t establish a single view of enterprise risk especially for more nuanced asset class exposures.

The report also highlighted the troublesome and overly complex nature associated with building scenarios which are used to assess a range of future risks.

The survey found that in-house system users struggle more than those using third-party platforms in this respect, perhaps because of the pre-canned tests or stress-testing modules that are often inherent to vendor systems.

“Financial service firms are in a race to keep up with the increasing complexity, speed and scope of today’s global marketplace,” said Audrey Costabile, senior analyst at Coalition Greenwich Market Structure and Technology, and author of the report.

“Risk management practices are set to evolve as unforeseen events shape the use of risk management tools and analysis methods. Data is a key element of this shift with managers seeking ways to acquire, aggregate and normalise data to run on larger and more complex datasets.”

«