Survey Reveals More than Nine Out of 10 Uneasy Over Stress Testing Reliability
Almost seven out of 10 (68 per cent) North American capital markets executives believe a significant portion of their firms' resources will be consumed by regulatory burdens and data latency issues, while 96 per cent admit that stress testing has not addressed all the important risks to the banking system, according to a recent survey by Sybase Inc., an SAP® Company (NYSE: SAP) and a leading provider of enterprise and mobile software.
"Regulatory challenges coupled with rapid data growth and the 'urge to merge' call for world-class, innovative technology that can consistently meet the demanding high-performance standards of today's capital markets firms," said Neil McGovern, senior director of financial services marketing, Sybase, an SAP company. "Customers facing regulatory challenges are required to collate very large amounts of data on-demand to meet intra-day regulatory requirements. This is why institutions need real-time predictive analytics solutions capable of streamlining and maximizing this complex function."
A similar survey was conducted across the EMEA and APAC regions that showed similar findings. In EMEA, 41 per cent cited regulatory burdens, followed by data latency (31 per cent) and front-middle-back office integration (27 per cent). Executives surveyed in APAC, however, believe that front-middle-back office integration (45 per cent) is the number one challenge, while 30 per cent cited data latency followed by regulatory burden (25 per cent).
With regard to the reliability of bank system stress testing, a combined 96 per cent of North American respondents were only "somewhat confident" or even "not at all confident" that stress testing has addressed all the important risks to the banking system, compared to 93 per cent in EMEA and 86 per cent in APAC. When asked about the preferred frequency of stress testing, interestingly nearly half of North American respondents (46 per cent) believe stress testing should be conducted at least once every six months, while 42 per cent believe that stress testing should be performed once a year. Majority of EMEA and APAC respondents – 68 per cent and 60 per cent respectively prefer more frequent stress tests –at least once every six months.
The survey also pinpoints concerns related to Basel III and its impact on banks' profitability. A combined 90 per cent of North American and 90 per cent of APAC respondents believe Basel III regulations will have "moderate impact" to "significant impact" on profitability. Ninety-six per cent of EMEA respondents agree.
"Real-time risk management strategies are key to ensuring effective regulatory compliance, including the proposed capital adequacy requirements in Basel III," McGovern continued. "There is now a confluence of regulatory and business reasons for capital markets firms to upgrade their risk architecture."
When asked about their struggle to capture data from trading systems for audit, compliance or future analytical purposes, respondents from the three markets could not agree. The majority of North American respondents (68 per cent) say they do not face challenges in capturing rapid data growth while three quarters of EMEA respondents (74 per cent) said otherwise. APAC respondents, on the other hand, were split almost evenly over their struggle — 51 per cent say they do face a challenge, while 49 say they do not.
185 survey respondents shed valuable light on the latest challenges facing the global capital markets industry today. Conducted over the past six months, the survey respondents consist of 50 North American senior managers and C-suite risk management professionals from major capital markets firms, 72 from EMEA, and 63 from APAC.