The fall-out from the subprime credit crisis and the Societe Generale trading scandal have laid bare glaring failures in risk management controls, procedures and processes in the financial services industry. In theory, risk technology serves as defense against everything from fraud to buying and selling investments that prove to be effectively worthless.
It is, ideally, the means by which senior management can make businesses transparent, ensure that traders and other employees conform with company and regulatory policy and analyze and act upon widely disparate developments and changes in a complex, fast moving business environment.
At worst, it creates false confidence, enables reckless and, in recent instances, extraordinarily costly activities, allows greed to trump prudence, makes business more opaque and ultimately nothing more than a panacea.
In the five-part series that follows, CIOZone takes an in-depth look at the risk-technology-related factors that contributed to the subprime collapse; explores in detail the debacle at the French bank Societe Generale (SocGen), where a variety of risk management failures contributed to the biggest banking fraud in history; looks at the lessons that can be drawn from SocGen and other investment firms; and, perhaps most important, explores how these events relate to CIOs.
Indeed, one of the results of the subprime economic crisis is that risk-related technology, which in the past was largely under business units in many organizations, effectively creating silos, will be integrated into mainstream IT. Moreover, in the future, CIOs will likely play a more significant role in managing the overall risk management function. "The CIO is the one person in the organization who understands real complexity of business and technology to raise the necessary alarms," says Amir Orad, chief marketing officer and executive vice president at Actimize, a provider of transactional risk management software with offices in New York, London, Israel and Tokyo.
Adds David Rogers, the U.K.-based global product marketing manager for risk at SAS Institute, the Cary, N.C., business intelligence software vendor, "Will the CIO become more involved in risk management in the future? In a word, 'yes.'"