Risk Arena Marked by Integration of Risk Tools and Vendor Consolidation

1999 sees increased consolidation among credit and market risk systems.

Following a tumultuous year for risk managers in 1998 as currencies collapsed and firms lost millions, the call for an integration of credit and market risk systems became loud and clear for vendors. The last year of the century saw this concept beginning to reach fruition, but many still say a successful integrated product is a ways off. Integration wasn't the only focus of 1999 as risk analysis took to the Internet with service bureau options to improve the efficiency and implementation of risk products.

Despite the Y2k freeze, vendors have come out of the cold and offered up innovative risk-management solutions in the past year. Service bureau options were new on the scene-particularly for the buy side-as BARRA, SunGard's Infinity, Askari and MKI have begun or are planning to offer risk services via the Internet as an outsourcing option (Product Digest, Q4/99).

While 1999 was slow in terms of sell-side installations of new risk-management systems, says Richard Roby, research director with The TowerGroup, he points out that several trends that began last year will remain in the spotlight in 2000. "Over the past year people's attention was devoted toward the integration of credit and market risk," notes Roby, adding that "more sophisticated methods of stress testing are increasingly being emphasized as well."

The risk industry in the past year was also marked by consolidation of risk vendors. By far the acquisition that garnered the greatest impact was that of C*ATS by MKI-making MKI an even stronger competitor to SunGard.

Roby emphasizes what every IT department already knows-the Y2k agenda has tied up technology spending and development long enough and while spending in 1999 continued to increase from past years, that amount is expected to skyrocket in the next few years. A report by The TowerGroup estimates that spending on external vendor solutions could rise from $620 million in 1999 to $2.4 billion in 2005 (Product Digest, Q4/99).

"Many projects which would have served to increase the functionality of risk-management systems have been put on hold because of the work for Y2k," says Roby. "The interest is there. It's pent up and is awaiting the freeing up of dollars over the next 18 months or so."