Banks are increasingly investing in risk technology infrastructure, according to findings from a new survey by FT Longitude, the thought leadership agency owned by the Financial Times, and SAS, the data and AI solution provider.
According to the FT Longitude and SAS survey of 300 risk executives in 25 countries, 75 per cent of banks plan to increase investment in risk technology infrastructure (up from 51 per cent in 2021), while 64 per cent plan to augment spending on third-party software (versus 43 per cent in 2021).
Having navigated the coronavirus pandemic’s disruption, the banking industry faces a new era of volatility and uncertainty. Soaring interest rates and liquidity risks have toppled eight banks since 2023, and credit risk looms large amidst geopolitical tensions and the squeeze of inflation.
Risk officers from Capital One, Commerzbank, General Bank of Canada and Santander Portugal reveal that investment in risk technology capabilities is growing significantly. In addition to the burgeoning investment in technology infrastructure and third-party software noted previously, 65 per cent of banks plan to engage third-party consultancy and advisory services, up 15 per cent since 2021.
Stu Bradley, SVP of risk, fraud and compliance solutions at SAS, said: “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. Those that replace outdated systems and infrastructure with a more integrated, enterprise-wide approach will see benefits across functions and enable better, more strategic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.”
Risk modelling is a focus for banks aiming to automate risk processes, with two-thirds (67 per cent) of banks planning to advance their risk modelling capabilities over the next two years (versus 54 per cent in 2021), while the percentage of execs who regard risk modelling as a competitive advantage has surged to 63 per cent, from 47 per cent in 2021.
Priotising risk management
The new benchmarking report, which is a follow-up to a study published in 2021, shows a striking rise in banking leaders’ prioritisation of risk management innovation, underscoring the critical role of technology in helping banks overcome adversity and build resilience.
Only a minority of banks report widespread use of AI for functions like risk management (40 per cent), risk modelling (30 per cent) and fraud detection (36 per cent). Even fewer report using generative AI for these functions: risk management (17 per cent), risk modelling (16 per cent) and fraud detection (24 per cent).
A lack of skilled talent remains the top barrier to fully adopting AI, according to 50 per cent of respondents.
Effective data management and data governance frameworks have also become essential. The executives surveyed see improved risk management (64 per cent), improved customer experience (55 per cent) and improved fraud detection (51 per cent) as top benefits for consolidating customer data. Yet only 14 per cent intend to significantly consolidate customer data, and fewer than half (44 per cent) say the same for non-customer data. Of note, data consolidation plans vary considerably by AUM and region.
Overwhelmingly, integrated balance sheet management (IBSM) is a high aspirational goal of surveyed executives; 77 per cent plan to invest in IBSM that enables them to better assess the impact of interest rate risk and credit risk.