Supercharging governance, risk and compliance with data visualization

Under pressure for greater transparency and risk awareness, firms stand to gain a lot from the data management revolution.

By David Asermely, Senior Product Manager, Governance, Risk and Compliance at SAS

The payoffs from rapidly analyzing big data are well-known in many areas of banks today. However, a number of instructive events over the past few years show failure of global financial services firms in truly understanding their risk and compliance data in time to avoid negative consequences.

Fines incurred by US and European banks for foreign-exchange and interest-rate benchmark issues and transactions with banned countries totaled almost $65 billion in 2014, as stated in an interview of Boston Consulting Group by The Wall Street Journal. This is a portion of the more than $162 billion paid by global banks to US regulators since the financial crisis, according to Financial Times.

These regulatory challenges are accelerating much-needed improvements in firms’ information management practices. “The data guys are getting their say at the corner office and getting the budget to drive many of these regulatory initiatives,” said Larry Tabb, CEO of the Tabb Group, a financial markets research and advisory firm.

We expect external loss events to be used as tools – not only for risk identification, but as a catalyst for change in the operating environment.

– Dennis Ryan, head of operational risk oversight for large institutions at the Federal Reserve Bank of New York

The technologies implemented for governance, risk and compliance have the added advantage of driving business improvements. If done right, it can achieve additional benefits. Under pressure for greater transparency and risk awareness, firms stand to gain a lot from the data management revolution.

Optimization is no longer a quarterly or monthly reporting cycle; it is an almost immediate response to market, capital and risk factor changes as they happen. “Increasingly, we hear that clients are trying to obtain an array of risk metrics more in real time, released multiple times during the day, not just as an end-of-day or over the weekend,” said Tabb.

For example, capital market firms already have a great deal of sophistication in dealing with data, but the velocity and variety – not just the volume – present challenges such as:

  • Aggregating risk exposures to interactively analyze, explore and drill down to business unit, desk, portfolio, instrument or horizon.
  • Offering up-to-the-minute assessments of risk exposures for large, complex portfolios of financial instruments and rapidly analyzing (in near-real time) incremental value at risk (VaR), counterparty exposures and liquidity measures.
  • Dynamically and interactively stress testing to anticipate the impact of extreme events on portfolio values.
  • Analyzing unstructured data, such as those millions of tweets potentially yielding clues to validate existing trading strategies and launch new ones.
  • Continuous surveillance to identify and prevent rogue trading, internal and external fraud, regulatory violations like money laundering, and market crashes.

Better risk management and insight

One of the purposes of governance is to ensure that your orga­nization is under control as people work, execute strategies and strive to meet business goals. Governance provides the framework through which you carefully delegate responsibilities, set objectives and performance metrics, maintain alignment of stakeholder interests and expectations, and monitor progress toward achieving goals.

Getting employees to follow rules and standards within complex corporate structures isn’t easy. And yet their behaviors and excessive risk taking can result in huge unexpected losses and staggering regulatory fines.

How can corporations police thousands of workers to ensure that their behaviors align with corporate’s risk appetite and regulatory reviews?

What is needed is next-generation data discovery tools that perform in-depth, dynamic and unpredictable policing. Successful data exploration and reporting applications can connect conduct risk nodes across data from multiple business functions – for example, traditional EGRC, cybersecurity, human resources, data security, fraud and compliance data – even as changes occur within your organization, market and regulatory environment. Ideally, these applications enable business users to efficiently investigate thousands of data points, review abnormalities and novel relationships, and facili­tate data sharing and collaboration across the organization. In addition, they can perform proactive data reviews that lead to new questions that, once answered, enable users to ask deeper and more specific questions vital to understanding and managing conduct risk effectively.

Visual statistics technology is essential to translate the hundreds of data tables, thousands of fields, and hundreds of thousands of data points into useful information. Querying these data sets to extract their untold stories requires technical expertise and an intimate understanding of the business and its databases. When data is transformed into simpler, visual reporting structures that organize and render data in colors, positions and shapes, the human brain can perceive important relationships, patterns and trends thousands of times faster.

The right data exploration and analytics solution can help you quickly transform GRC data into information and insights needed to answer these types of questions, which should be asked as part of regular, collaborative governance sessions. Ideally, questions can be answered on the spot to facilitate next-level questions and discussion; momentum is lost when ques­tions are asked and shelved for future discussions. And when properly implemented, these sessions:

  • Facilitate general awareness of what is going on at the boundaries of each department and, more broadly, inside and outside your enterprise.
  • Help executives and senior risk managers gain a deeper understanding of common goals across departments, what the organization is trying to accomplish as a whole, and the effectiveness of governance metrics.

What is the bottom line? Data visualization and other high-performance analytics can help all banks make better business decisions. And if banks better understand the data that underpins their compliance and governance processes, they can improve management of risks and protection from internal and external fraud – even cyberthreats.

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