Spending on risk management-related IT, steadily increasing over the past few years, continues its upward swing, according to a study recently published by Newton, Mass. consultancy Meridien Research.
The report finds that asset management firms constitute a portion of "new types of institutions" that are beginning to increasingly explore risk-related technologies. The various areas of risk management, however, are not growing at the same pace, and a drop-off in growth in some segments is inevitable, according the study.
"Overall ... spending on risk management IT is still growing at a very rapid pace," says Deborah Williams, the Meridien analyst that authored the report. "We expect this growth in spending to continue over the next five years, but depending on the specific area of risk IT spending will begin to decelerate during this period."
Over the last two years, Meridien has published several estimates on risk management technology spending, tapping into budget stats from 500 full-scale financial institutions. The mix includes 400 of the largest banks and securities houses, as well as 100 large asset management companies and insurance firms.
The latest round of data gathering yielded the following results: enterprise market risk is growing at 18%, enterprise credit risk spending is increasing at 19%, desk level risk at 8%, Asset Liability Management at 12% and global limits systems at 12%. The report identifies market risk as the area that will be most likely impacted, and projects credit risk is expected to continue to grow beyond this five-year-period.
"Credit risk is the fastest area of growth in risk management," says Williams. "We believe this number has, in many cases, displaced market risk spending." Risks that do not yet account for much IT spending, including operational and legal risk, are likely to become significant during this period as well, says the report.
"The biggest influence over the total levels of spending, however, will be the number of institutions that are investing in this type of technology," says Williams. "Increasingly, smaller banks and securities firms have begun to investigate these solutions, as have a variety of new types of institutions, such as asset management firms."
"Over time this deepening of the market will have a much greater impact on both the spending levels and the shape of risk solutions, than will the moderate increases in spending by individual institutions," she adds.