RISK MANAGEMENT

Outsourcing
Risk Management:
Assessing the benefits for a criticalcomponent of the FX Workflow“The benefits of cloud computing for FX risk management
workflows are many, but the principal advantage to users isthe ability to access cutting-edge technology that is quick to
deploy and evolve, at an affordable price.”transaction data. The FX market is fullof valuable data, and analytics canpower better decisions. In the past,banks would have had to rely onbuilding proprietary analytics software.

“For most banks, credit management,

However, these days off-the-shelf

price-making, internalization, andsoftware allows them to plug their

hedging customer flow were still

data pipelines into these platforms

manual rather than automated tasks,”

and immediately view trends andsays Srivastava. “Often, by the time

TCA models on their data. These

this technology was built, it became

sophisticated platforms help banks

out of date given the rapidly evolving

build better risk management

nature of the markets.”

strategies that react to real-timedata in the market. Thus, banks canSaaS business models have changed the way banks look at their businesses. Is institutional FX risk
management a candidate for disruption too? Vivek Shankar explores the issues.

Technology has made rapid strides,
and institutional attitudes have beenchanging. A survey conducted by

now zoom in on tick level data andVikas Srivastava

receive a holistic view of their risk
management models.

RISK MANAGEMENTFX Markets and Integral discovered
Technology is changing the way

Integral Development Corp. thinks so.

exposing order flow was significant,that 41% of respondents expected

feedback loops between theseThese benefits offer FX dealing

businesses function and is shifting“The benefits of cloud computing forand it was easier to house ato house FX trading workflows on

functions these days using managed

institutions an easy way to modernize

attitudes with it. While technological

the FX risk management workflows

technology team that could addressa hybrid model of cloud and on-services.

their businesses with no disruption to

impact has made itself rather obvious

are many, but the principal advantage

infrastructure and security concerns.

premises technology. A further 28%

in consumer finance, even institutional

to users is the ability to access cutting-However, this setup brought problems

expected their workflows to be

For instance, banks can skew theirare some issues banks must consider

finance has been rapidly remodelingedge technology that is quick towith it.

entirely cloud-based within five years.

pricing according to their risk appetite

before going down the cloud route.

itself around changing consumer

deploy and evolve, at an affordable

attitudes.

price.”

Deloitte’s “Bank of 2030: Transform

A look at the current state of theBoldly” highlights the need forbanks to reorient themselves aroundservices. Despite these benefits, there

and adjust their strategies upon
Cloud infrastructure these days allows

meeting P&L targets. These features

KEY ISSUES TO CONSIDER

institutions to host their data on public

allow banks to automate workflows“There are a host of criticalor private clouds, communicate thatbetween pricing, credit, and risk

considerations in picking the bestcloud and its benefits for firms offers

data to other applications seamlessly,management. Traders can customize

SaaS providers in FX,” explains

an interesting perspective.

and archive it. Add to this the security-

their risk management strategies,

Srivastava. “These relate to both

centric focus that cloud services

whether they wish to implement

qualitative evaluations, associatedproviders include in their offerings,

time-based, event-based, passive orwith experience, customer service

and the benefits become obvious.

active hedging, or algorithmic orderand flexibility of technology, andmanagement.

quantifiable traits, such as costs andemerging technology, embrace
the power of analytics to drive

RAPID TECHNOLOGICALADVANCES

their businesses further. When put

Traditionally, institutions havetogether, all of these initiatives help

preferred building data centers andCost-effectiveness is the biggest

banks place their customers at thehosting them on-premises due

benefit of moving to the cloud.

Internalizing order flow to mitigate

center of their business strategies.

to security concerns.

FX market environments change

high hedging costs in the market is

Traditionally, outsourcing services

After all, theconstantly, and banks need rapid

also easy when opting for a managed

have required clients to sacrificerisk ofoperational agility, and leveragetime to market.”adjustments in their risk management

service provider. These features willsome control over business processes,

institutional FX world? Managedworkflows. Such conditions callappeal especially to banks and retail

but this isn’t the case with a good

services businesses have long touted

for a nimble technology stack, andbrokers. Cloud-based service providers

managed services provider. Service

the benefits of adopting cloud-the cloud is a perfect fit. Thanks tooffer dealers high levels of flexibility

providers manage data connectivity

based technology to augment FX risk

fast deployment features and easily

by allowing them to customize theirand make sure that a dealing desk ismanagement workflows. However,updated components, institutions canwarehousing models. They canreceiving all the information it needs

is a move to the cloud a winning

integrate, scale, and configure theirautomate their workflows or manually

to manage risk. They don’t manipulate

proposition for institutions?

applications with low risk.

manage risk, with the option to switch

or control the data itself.

Vikas Srivastava, Chief

Cloud technology also allows banks

Revenue Officer at

better integration between pricing

Finally, one of the biggest benefits

services provider must be an

cloud-based financial

and risk management workflows.

that a cloud services provider canextension of the trading desk’s

technology provider

Institutions can build intelligent

offer is the ability to dig deeply intoinfrastructure. They must help firms

Can such an approach work in theback and forth in real-time.

32 OCTOBER 2021

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Outsourcing Risk Management: Assessing the benefits for a critical component of the FX Workflow
build better trading strategies by

The bottom line is that a managed

management systems will also needgiving them the tools to react toservices supplier must be service-

to fit seamlessly within their orderchanging conditions faster. Theseoriented and accommodate

lifecycle and OMS platforms. Tradersdays, volatility events are a common

an institution’s regulatory andat these firms might want to upload

occurrence, and during such times

compliance requirements. They

multiple orders at once and view thethe flexibility a managed services

must be prepared for the long haulrisk consequences on their books inprovider offers can be invaluable.

technologically since the markets are

real-time.

changing quickly. Banks must review
The ability to preserve trading

service level agreements (SLAs) to“Risk management in the current

connectivity, whether it’s finding

enforce liability, resilience, andmarket is all about micro focus,

liquidity partners or maintaining data

security in the services they receive.

being able to customize down to theRISK MANAGEMENT

flow, through any means necessary

smallest level as well as managing

is a critical requirement. A good

“Being a trusted partner is arisk on the aggregate level,”managed services provider evaluatesfrequently overused term,” opines

explains Srivastava. “A good cloud

all possible use cases to connect aSrivastava. “However, keeping

provider allows you to do that withbank to its counterparties. Whether

customers’ best interests at heart

the correct configuration of yourby voice, RFQ, or a central limit orderand helping them achieve the bestsystems.”

book, the more avenues a service

outcomes come from taking theprovider offers, the easier it becomeslong view with them, assuming that

Service providers offer a range offor banks to deal with adverse

they will be serving customers forsolutions, aside from broad services

market conditions.

several years, if not decades. That

like a public, private, or hybrid cloud.

trust comes from genuinely listening

No matter the client’s requirement

Every managed services provider

to actual problems and finding theor size, the cloud offers firms theoffers a liquidity community to itsright solutions.”

best way of scaling solutions to theirclients, thanks to better connectivity.

Integral BankFX
Bespoke. Flexible.
Never boxed in.
BankFX is more than just software.
Used by banks and financial institutions
around the globe, every aspect of theservice is highly configurable, so you
can deploy FX workflow aligned to yourbespoke needs - without compromise.

needs due to its flexible nature.

Some institutions might reevaluate

Each firm’s connectivity requirements

their risk models because of this.

will differ depending on their trading

CONSTANT INNOVATION

For instance, fund management

strategies and banks must take theThe SaaS business model has

firms have to source large pools oftime to discuss and validate the kind

disrupted the way businesses lookliquidity to protect investor fundsof service they need before engaging

at their technology platforms, andand preserve the effectiveness ofa service provider.

risk management is no different.
Firms that adopt the cloud tend totheir strategies.

TAILORED SOLUTIONS

innovate faster and develop flexibility

A DIY approach will cost the firmManaged services providers

in their operations.

significant resources and time, which

differentiate themselves by offering

increases the risk on their books.

clients the ability to customize theWhile outsourcing every aspect of

By outsourcing services, these firms

solutions they need. For instance,

FX order flow to the cloud isn’t thecan reevaluate their position in therisk management requirements differ

best solution yet, there’s no doubt

markets thanks to greater liquidity

for the buy and sell side. The sell sidethat the benefits of hosting risk

access. Evaluating this liquidity

needs greater focus on regulatory

management processes on a third

community that a services provider

requirements, client demands, andparty platform are immense. Frombrings is crucial.

keeping pace with product changes.

tailored solutions to advanced data

Of course, the size of a firm also

analytics, managed services providers

The primary service a managed

determines the depth of focus onoffer a suite of solutions that benefit

services provider offers is data flow.

these areas.

institutions of all sizes.

access to in-depth historical data is

The buy side might focus more

While the kind of services offered to

critical since it allows desks to buildon achieving the best execution

institutions will change, the cloud

accurate benchmarks. Reacting towhich means gaining access tois here to stay, and its influenceliquidity events and stressed market

different types of liquidity, whether

is growing in institutional FX.

conditions becomes easier as athrough bank relationships or

Srivastava believes that a complete

result.

non-bank market makers. Their risk

move to the cloud is inevitable.

BANKFX MODULES
Select the modules youneed or take the full stack.
Liquidity
Pricing
Distribution
Risk Management
Analytics &Data Science
For more information
visit integral.com

While real-time data is important,

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