By FINTECH Books Contributor, Rohit Ghosh What are the merits and demerits of implementing a common infrastructure encompassing all risk related functionalities? The regulatory requirements (FRTB, BCBS 239 etc.) are getting more standardised and complex at the same time and each organisation is budgeted to spend a good part of its resources in upscaling its risk system and revamping its legacy systems. The requirements mandate not only more scrutinised and high-dimensional data collection but also more advanced analytical horsepower. Further, the standardisation is not only in terms of modelling approach which arguably should remain more flexible, but also in terms of underlying data which ideally should be same. The approximate operational logistics of a cloud platform, details of cost-savings incurred from shared infrastructure are explained in the paper explicitly. Coming back to flexibility that organisations require to use their own methodologies for modelling risk for different products, the platform should offer flexibility to build such modules as per requirement. Moreover, collective intelligence behind the platform would enable a tool-box of state-of-the-art algorithms to choose from for modelling purposes. Further, a common platform would greatly help regulatory authorities in reinforcing standardised regulations. Platform like this would help regulators design data-powered stress testing conditions, better capital requirement regulations etc. Benefits to regulatory bodies are detailed out in the article explicitly. The utmost important concern of organisations regarding system security and data privacy is tackled by using state-of-the-art encryption techniques for end-to-end-encryption. It does bring new operational risk typically associated with dependency on external system. However, it does tackle some of the existing operational risk of wrongful data manipulation. If in the past we could move to online trading floor and exchanges, there is no reason why risk capability can not be parked on a common utility.

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