Banks to boost risk tech investment amid macro challenges

A new global report has revealed that 75% of banks plan to increase investment in risk technology infrastructure, highlighting an upsurge in risk management priorities within the banking industry.

The study, conducted by FT Longitude and SAS, surveyed 300 senior managers and executives at investment, commercial, corporate, and retail banks. It found a substantial rise in investment in risk management IT infrastructure and solutions, driven by the challenging macroeconomic environment.

The report, "Transforming Risk Management", indicates a significant shift from 2021 when 51% of banks reported intending to increase investments in this area. It also showed that 64% of banks plan to increase spending on third-party software, compared to 43% in 2021.

In-depth interviews were conducted with risk management executives at large multinational banks, adding context to the survey data. Featured contributions include perspectives from risk officers at Capital One, Commerzbank, General Bank of Canada, and Santander Portugal.

Carlos Diaz Alvarez, Chief Risk Officer of Santander Portugal, emphasised the need for integrated decision-making. "Banks can no longer take decisions relating to liquidity, capital or credit risk in isolation," he stated. "We can extract key information from separate systems to make holistic decisions, but we need more granularity and integration."

The research showed that risk modelling is a top focus for banks as they deal with regulatory changes and seek to automate risk processes. A noted 67% of banks plan to enhance their risk modelling capabilities over the next two years. Furthermore, the perception of risk modelling as a competitive advantage has increased to 63%, up from 47% in 2021.

AI technology adoption among banks remains varied. While 40% of banks report widespread AI use in risk management, only 17% do the same with generative AI. American banks are leading in AI and generative AI usage compared to their EMEA and APAC counterparts, who show the least utilisation.

The report cites a lack of skilled talent as the primary barrier to adopting AI fully, with 50% of respondents across regions highlighting this challenge.

There is a notable need for banks to improve data management and governance frameworks. Improved risk management and customer experience are seen as primary benefits of better data consolidation, though only 14% of banks plan to significantly consolidate customer data. Variations in data consolidation plans are observed across different asset sizes and regions.

Asset liability management (ALM) systems are also a focus, as only 20% of risk executives report being "very satisfied" with their current systems. Approximately 79% are either implementing next-generation ALM solutions or enhancing existing functionalities, with American and large banks leading in ALM integration.

Stu Bradley, Senior Vice President of Risk, Fraud and Compliance Solutions at SAS, commented on the importance of leveraging AI-powered platforms for risk evaluation. "With risks impacting financial institutions more interconnected than ever before, firms need a singular, AI-powered platform that allows them to evaluate risks across the balance sheet and perform more holistic stress testing," he said. "Those that replace outdated systems and infrastructure with a more integrated, enterprise-wide approach will see benefits across functions and enable better, more strategic decision-making."

Thomas Sturge, Group Editor at FT Longitude, also noted the continuous need for banks to modernise their risk management practices. "Our research finds that banks took some vital steps forward over the past three years to build resilience," he remarked. "But they can't get caught comfortable. Ongoing turbulence means they must constantly modernise, improve and transform how they detect, manage and mitigate risk."