RiskTech Forum

Risk and Finance Integration

Posted: 19 October 2012  |  Author: Cassie Newland

Since the advent of the financial crisis, the benefits of risk and finance integration have become steadily more evident. A single, integrated source environment can allow firms to take advantage of the shared ground and data between risk and finance, allowing them to cut costs and streamline compliance and reporting requirements. It also enables the use of risk-adjusted performance measures and allows firms to obtain more accurate accounting and risk information. These benefits have become particularly apparent with the introduction of Basel 3 and the new IFRS accounting standards.

The new IFRS standards create a much larger overlap between risk and finance functions by requiring the use of risk factors and risk data in accounting calculations. The new standards also require the disclosure of risk management policies as a part of hedge accounting. Risk and finance integration will help firms deal with these increased obligations by making it easier to get the necessary data and perform the calculations.

Aligning risk and finance functions, as well as dealing with IFRS, will require robust technology solutions. Financial institutions will need to implement a single data model to allow data to be shared between risk and finance, and will also need real-time cash-flow engines, multi-GAAP ledger functionality, and event-based accounting engines.