Accounting weekly

Less Risky Business: How Tech is Helping Calculate Capital Market Peril 

You can’t predict the future, but increasingly software is helping us forecast with more confidence, according to Robert Cronjé, an analyst at Elenjical Solutions, a fintech capital markets consultancy. 

2008. Perhaps the scariest year you can mention to a banker. Not only did the financial crisis give us great movies, but it also initiated a radical rethinking of risk management.  

  

“I think the financial crisis was a bit of a wake-up call for financial institutions to take their risk management a bit more seriously,” says Robert Cronjé, an analyst at fintech consultancy Elenjical Solutions. It also brought opportunity.  

  

Fast forward a decade, and a range of sophisticated software emerged, referred to as capital market platform technologies. One example is Murex, a company with which Cronjé has worked. It describes its software as allowing banks to “control market, credit and liquidity risk for internal and regulatory compliance” in real-time. 

Exactly how Murex and competing platforms work is a proprietary secret. They seem to blend cloud computing, real-time data, and calculations made possible by modern computing power to offer portfolio managers, traders and financial departments faster and better risk assessments. 

Take the statistic, ‘value at risk’. This concept has been part of risk management textbooks for decades. Not only does modern software determine the ‘value at risk’ of a particular loss occurring for a specific investment, but these tech products also allow you to consider the effect of imagined black swan events. 

“These modern technologies can produce stress test scenarios that can essentially tell you what the profile of your portfolio is going to look like given certain changes in the market,” says Cronjé.  

Investment banks, particularly risk management and finance departments, are taking these technologies and their implications seriously. A report by The Global Financial Markets Association and PwC predicts “that data-driven decision making, AI and cloud-enabled ‘intelligent dashboards’, available digitally, will help these functions better identify risk exposures to determine appropriate responses and monitoring procedures.” 

  

Unfortunately, accountants haven’t been at the forefront of these technological developments. “From what I’ve seen, the people working on the platforms are generally from technology, engineering, financial risk or statistical backgrounds” says Cronjé. 

However, there are also opportunities, particularly for CFOs or accountants at large South African corporates.  

  

“If you’re a company with lots of foreign exchange exposure, you would need some sort of risk metric,” says Cronjé. “The appeal of these capital market technologies is that risk management becomes much easier for you, and you don’t need to come up with the most sophisticated models yourself. You can rely on best practice in the market and facilitate your risk management in that way.”