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Treasurers Trust Big Data For Real-Time Risk Assessment

arm insight

Risk management is complex territory for many businesses, especially those with complex partnerships, vast supply chains and global footprints. But Big Data lands new capabilities in the hands of corporate treasurers and other executives that yields active, real-time assessments of risks from multiple angles, from counterparties to compliance.

A new white paper from treasury management solution provider Hazeltree emphasizes the crucial role metrics and data play in counterparty risk management and mitigation for buy-side treasurers, for instance.

“Active Counterparty Management — Critical To Managing Risk,” published last week, finds that retroactive counterparty risk management oftentimes doesn’t cut it, and that real-time and active management of this risk can sometimes be the difference between staying in business or shuttering your doors.

“Putting it bluntly,” the report notes, “if you wait until a liquidity crisis hits to cobble together an analysis based on an array of spreadsheets, it is probably too late.”

For fund investors, active risk management is of particular importance for treasurers, Hazeltree noted. Especially in the wake of the 2008 financial crisis, industry experts acknowledged the role that sophisticated data intelligence played in mitigating risk, with treasurers able to track risk on a daily basis. Today, these professionals are deploying technologies to track fees paid to their providers to not only save basis points, but to have more negotiating power on funding terms.

“Treasury management is central to every fund manager’s top priority of protecting assets,” said Hazeltree CEO Sameer Shalaby in a statement announcing the white paper. “Effective counterparty management hinges upon setting and actively managing a core set of counterparty metrics. The importance of this has never been clearer, as it has been proven to enable greater efficiency, better decision making and real savings through cash, collateral and financing optimization.”

There are several ways heightened data management can yield more effective risk mitigation, Hazeltree noted.

One is in assessing counterparty strength. Cyber risk exposure, the paper noted, is about more than who owes you money; the strengthen of that counterparty involves their financials, capital structure and other metrics. Key to managing risk, too, is to keep an ongoing dialogue with counterparties to gain a clear view of their strategies.

But while Hazeltree’s paper focuses on the importance of key metrics to assess counterparty cyber risk for fund managers, analysts agree that active, continual data collection and analysis is playing a significantly larger role in other areas of risk management.

Last month, OpenLink Vice President of Commodities & Treasury Solutions Mark O’Toole discussed the role Big Data plays for real-time liquidity risk mitigation.

“Put simply, it’s a bigger challenge than you would imagine,” O’Toole told FX-MM in an interview. “From a technology point of view, I think what corporates and banks are ultimately looking for is a real-time enterprise view of liquidity, and to be able to perform stress testing and behavioral scenario analyses on that data.

“Once you have that data, you need to be able to run advanced analytics at a granular level, to slice and dice that data right down to the what, when and where to discover how a certain transaction is affecting liquidity risk,” O’Toole added.

Changing regulations, he said, make it more important for real-time and active data analysis to play a part in treasurers’ risk mitigation strategies.

Earlier this week, Eric Olson of compliance technology company Sovos noted the growing importance of real-time data sharing and more sophisticated analytics in corporate compliance as businesses enter into new jurisdictions. Governments are demanding faster data sharing across borders, while businesses and their IT departments are tasked with upgrading their data management capabilities to mitigate compliance and cybersecurity risks.

In what he called “rapid response compliance,” governments are accelerating not only the pace of change in regulations but the pace at which companies must adhere to those rules, provide data and create reports for those governments. A weak data management strategy could heighten the risk of non-compliance.

Both Hazeltree and OpenLink’s O’Toole make clear the role Big Data plays in cybersecurity and treasurers’ risk mitigation efforts; Sovos’ Olson suggests data analytics’ risk mitigation capabilities can spread to other departments within the enterprise, too.



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