Exploring the Standardized

Approach for Risk Management

Contents

3 4 7
Introduction Risk is No Longer Three Reasons
About Risk to Focus on a
Standard Approach
to the Standardized
Calculations Now

9 11 13
Where Does a Bank Want FIS Tops RiskTech100 Conclusion
to Focus its Talent? 2018 – Third Year in a Row

2
Introduction

Empowering the Transformation

of the Investor Experience
Why adopt a standardized Web-service approach in risk management? What are the benefits?
Read our latest collection of industry insights for a better understanding of FRTB and the
internal model calculation and a more confident post-implementation risk strategy.

3
Risk is No Longer About Risk

Sven Ludwig, Managing director, risk management,

EMEA region, Risk & Compliance, FIS

Banks are about to realize that they are IT

companies with a banking license and risk
is no longer about risk or regulation.

Confused?
We’re entering a third phase of risk management. We’ve moved past
discussions about risk methodology (phase one) and regulation (phase
two). Now it’s all about technology and simplification. In my decades in the
financial industry, risk managers have never been so focused on technology.
That relates to a few different sets of priorities. One is about improving
operating margin, driving business activity performance and acquiring
customers. That means more efficient processes, reduced IT costs and
faster, better business decision-making. This is where risk comes in by
calculating lifetime expected cost, which is risk-, funding-, facility- and
capital-based.
Second is the emergence of new types of risk. According to our new
report, The FIS™ Readiness Report: The Hunt for Growth Across the Sell
Side – The Outlook for Risk and Compliance, at least three-quarters of
risk and compliance executives believe they have strong capabilities
across traditional areas of risk management such as regulatory and
compliance risk, operational risk, credit risk and market risk.

4
Risk is No Longer About Risk

But that’s not the case with liquidity risk in cross-asset.
Seventy-nine percent of risk and compliance respondents think
it’s important to respond to multi-asset strategies, but nearly
38 percent are not confident that they have the liquidity risk
management capabilities to fully support this.
So, banks realize that it’s not about managing risk in silos anymore
– the Magna Carta of regulations makes risk types interdependent.
The regulatory rations and constraints, accounting rules such
as IFRS 9 / Current Expected Credit Loss (CECL) interrelate with
such complexity that now it’s about the intersection of risks –
how customer behavior, macroeconomic factors and business
plans result in Economic Value of Equity and in future profitability
in both normal times and under stress; how counterparty risk
transfers into liquidity risk; how market risk drives liquidity risk;
and how banks are able to evaluate lifetime expected costs,
which is basically an intersection of all of the risk types, to make a
sustainable business decision. They realize there’s a fundamental
change needed, but they can’t do it because of their legacy IT
infrastructure: More than half of risk and compliance executives
say their current technological capabilities are not strong enough
to fully support their growth plans, compared to 48 percent of
executives overall.

Traditional Software model Risk Services Model

Steer the bank Bank

Bank
Analysis

Non-
IT Maintenance
differentiating

Regulatory Maintenance

Regulatory Calculation

5
Risk is No Longer About Risk

Historically, risk departments were very proud of their in-house It’s just like the triad of capital, liquidity and profit. You
development, and our research shows that 60 percent of all sell- can have all the liquidity in the world, but you can die as a bank
side respondents believe their in-house development skills are because you’re not profitable. In the same way, you need to
good. But, only 44 percent of risk and compliance executives address all six areas to solve the challenges facing banks today.
agree. That’s a dramatic change.
A starting point to address the challenges is to transform
Risk and compliance executives are also more pessimistic the use of traditional software models. It’s time to focus on core
about their data capabilities, especially around big data. Only 49 competencies and differentiators – steering and managing the
percent rate their ability to combine external data with internal bank. An agile risk service model, e.g. for new regulatory standard
organizational data as effective, compared to 61 percent overall. models, enable the transformation from an operational task
orientation to model focused on business decisions to reinforce
And only 33 percent believe that the regulatory outlook in their key
sustainability and value creation.
markets will improve over the next 12 months, versus 44 percent
of all respondents. FIND OUT MORE ABOUT OUR RESEARCH BY DOWNLOADING
THE REPORT, THE FIS™ READINESS REPORT: THE HUNT FOR
If banks want to reduce operational costs and improve margins,
GROWTH ACROSS THE SELL SIDE – THE OUTLOOK FOR RISK
then technology needs to be simpler. That goes for risk too –
AND COMPLIANCE. WWW.FISREADINESSREPORT.COM
banks should be running one consistent valuation kernel ... not 20.
So how do banks and risk managers accomplish these goals?
Our research points to six recommendations:
1. Deepen automation
2. Excel in data
3. Add value with emerging technology
4. Accelerate innovation
5. Reimagine the customer experience
6. Recruit the specialist talent

6
3 Reasons
to Focus on a Standard Approach
to The Standardized Calculations Now
Financial institution are required by regulators today to calculate more metrics, often under prescriptive standardized approaches.
Standard Initial Margin Model (SIMM) is being phased in over the coming two years until 2020 and you may be impacted sooner.
The standardized approach for the Fundamental Review of the Trading Book (FRTB) won’t take effect until the start of 2022, but
you need to understand the impact of both the rules now to plan your post-implementation strategy.

Here are three things to think about:

1
Regulators and internal management will want to know the impact of new
methodologies and if there should be any changes to the business to minimize
impacts on capital or liquidity.
You’ll need strong capabilities to perform business-strategic “what-if” scenarios and explain impacts on your
capital and liquidity. Strategic repositioning of the bank can take years, so the analysis has to happen now.

7
3 Reasons
to Focus on a Standard Approach
to The Standardized Calculations Now

2
There’s no competitive advantage to doing standard calculations yourself.
Unlike some types of calculations, standard calculations are, by definition, the same across the industry.
Where you can differentiate yourself is by providing the best tooling around the calculation at the lowest cost.

3
Why invest a lot upfront in creating a solution in-house or licensing software, when
the requirements are still in flux?
Regulations are yet to be implemented in many local jurisdictions, and financial institutions’ stakeholders are still
debating who owns the calculations – risk management, front office or capital management. So start with the
minimal “no regrets” investment and grow from there.

It’s easy to put off addressing requirements that aren’t immediate, but as we know – it is much better to fix a
leak now than to wait. If the last few years have taught us anything, it’s to think ahead, invest carefully and be
prepared – both for the requirements themselves and the likelihood of change.
8
Where Does a Bank
Want to Focus its Talent?

Dan Travers,
Senior Vice President, Product Management, FIS

While risk and compliance executives believe a

broad range of digital skills will be important to
growth, they worry about talent gaps today. The FIS™
Readiness Report: The Hunt for Growth Across the
Sell Side – The Outlook for Risk and Compliance
found that in several key areas, only 44 percent of
risk and compliance executives see their in-house
analytics and big data talent as good (versus 48
percent of executives overall), 58 percent say in-
house digital change talent is good (60 percent
overall), and 44 percent rate in-house software
development as good (60 percent overall).
Like other executives, those in risk and compliance
see digital skills as crucial drivers of their
institutions’ growth objectives: nearly two-thirds (65
percent) say big data and analytics expertise will
be a growth enabler over the next 12 months, while
almost as many (64 percent) point to the need for
digital change skills, and 56 percent cite software
development as a key area.

9
Where Does a Bank
Want to Focus its Talent?
In this day and age, banks are competing with big tech for
the best talent, so IT managers need to be thinking about
what is exciting and differentiating work for this talent. Given
this, what’s the best strategy for addressing challenges like
the standardized calculations for FRTB and the initial margin
calculated under ISDA SIMM? These are standard, prescribed
calculations, allowing little ability for a bank or talent to
differentiate, and are not exactly the “sexy” work for the
talent available.
So, what are the alternatives? What about outsourcing? Not
to a bespoke build which can be equally expensive, but to
a service which is providing the calculations for the whole
industry – the utility model.
A scalable utility gives you access to the best talent alongside
powerful capabilities within a comprehensive service. This
service can benefit from the economy of scale since it is
performing this service for multiple clients – it can provide
the most up-to-date regulatory compliance, geographical
localization, and the best transparency and analysis tooling.
This is functionality that you might be able to build on your
own, but is it where you want to be spending your resources?
So, after assessing the banks requirements, maybe a service-
based architecture will allow the bank to focus talent on what
it values most.

10
FIS Tops RiskTech100
2018 – Third Year in a Row

Overall Winner FIS tops the RiskTech100® Rankings for

the third consecutive year, scoring highly once again with
the breadth and depth of its functionality in a wide range
of market segments across banking, sell-side, buy-side,
insurance and energy. Well‑executed strategic acquisitions
in recent years have remained critical to its success.
In the music world, chart-toppers change on a weekly basis.
But when it comes to financial services risk technology, one
name continues to hold the top position year after year. It will
come as no surprise that FIS has — for the third year in a row
— taken the prestigious title of Overall
Winner of the Chartis Research RiskTech100® Rankings.
With a wide range of offerings, Florida-headquartered
FIS now serves clients in more than 130 countries and
employs more than 53,000 people worldwide. The vendor’s
position on the sell- and buy-sides was strengthened by its
acquisition of SunGard in 2015, as complementary offerings
brought it into new markets for financial technology services,
adding asset managers, traders, custodians, treasurers,
third-party administrators and clearing agents, as well as
insurers, to the broader FIS client base.

11
FIS Tops RiskTech100
2018 – Third Year in a Row

The industry giant now has 20,000 clients worldwide and
delivers technology across different sectors of the financial
world. “To take home such a prestigious honor – not once but
three times in a row – is something we’re extremely proud of as it
demonstrates how consistently we have focused on our clients’
needs,” said Marianne Brown, Chief
Operating Officer, Institutional and Wholesale, FIS. Rob Stubbs,
Head of Research at Chartis, says: “To provide the best analysis,
we review an incredible amount of data. That’s why it’s all the more
remarkable that FIS has not only achieved a number one ranking,
but has done so for the third year in a row.”
The vendor’s success in different areas of the market has led
to FIS not only winning the Overall award but also topping the
rankings in Insurance, Market Presence and Functionality for the
third consecutive year, Market Risk for the second consecutive
year, plus winning the Energy Trading category for the first time.
FIS reigns with a portfolio of software, services and outsourcing
offerings for, among others, helping clients to manage risk,
streamline operations and meet regulatory requirements. The
vendor continues to innovate, delivering improved performance
to clients. One example is market risk, where the next production
release will be a significant upgrade. Since late 2016, FIS has taken
the performance of the risk engine to the next level by introducing
adjoint algorithmic differentiation (AAD), which enables firms to
run risk sensitivity calculations even faster. In 2018, AAD will be
used to deliver credit valuation adjustment (CVA) sensitivities
for the new Fundamental Review of the Trading Book-CVA Risk
Capital regime. “AAD is a game changer for the risk engine,” says
spokesperson for FIS, for the Risk and Compliance business within
the institutional and wholesale division at FIS.
FIND OUT MORE:
http://www.risktech-forum.com/research/chartis-risktech100-2018.

12
Conclusion

A starting point to address the challenges

is to transform the use of traditional
software models. It’s time to focus on core
competencies and differentiators – steering
and managing the bank. An agile risk service
model (e.g., for new regulatory standard
models), enables the transformation from
an operational task orientation to model
focused on business decisions to reinforce
sustainability and value creation.

GET MORE INSIGHTS AND

PRACTICAL ADVICE FROM THE
FIS TEAM. CONTACT US AT
GETINFO@FISGLOBAL.COM.

13
 About FIS
FIS is a global leader in financial services technology, with a focus
on retail and institutional banking, payments, asset and wealth
management, risk and compliance, consulting, and outsourcing
solutions. Through the depth and breadth of our solutions portfolio,
global capabilities and domain expertise, FIS serves more than
20,000 clients in over 130 countries. Headquartered in Jacksonville,
Fla., FIS employs more than 53,000 people worldwide and holds
leadership positions in payment processing, financial software and
banking solutions. Providing software, services and outsourcing of
the technology that empowers the financial world, FIS is a Fortune
500 company and is a member of Standard & Poor’s 500® Index.
For more information about FIS, visit www.fisglobal.com.

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