Overcoming the visibility roadblocks in your risk and compliance


According to Commodity Technology Advisory Report, 80% of companies continue to use traditional, on-premise systems that don’t provide real-time visibility into data

Although commodity markets have always been temperamental, the challenges today are unprecedented given the pandemic, geopolitical tension and regulatory changes, occurring at the same time. The constant stream of market disruptions gives rise to newer risks challenging commodity businesses on how to gain visibility of the environment.

This limited visibility diminished commodity businesses ability to respond quickly to the changes in supply and demand brought about by Covid-19.  Similarly, with new regulatory changes taking effect such as KYC, GDPR and MIFID II, staying compliant becomes an immensely daunting task. It entails tracking hundreds of different trades and transactions, and then classifying them based on regulators, geography or asset class and then reporting them in different formats to different jurisdictions.

Speed and agility

Speed, accuracy, and flexibility need to become the hallmarks of risk management. Businesses need to identify and manage risk amidst change as quickly as it happens. They need trusted, real-time data to perform advanced analytics quickly to gain insights from their data.

“To thrive in a constantly volatile environment, businesses need complete and real time visibility to identify and manage risk amidst change as quickly as it happens.”

Most C/ETRM systems currently in use were initially designed to handle the complexities of commodity trading 20 years ago. As businesses expanded their operations across several geographies, they added on capabilities through point solutions to address the broader risk elements associated with these new financial transactions. These systems or solutions are poorly integrated across the organization and getting one, consolidated view of risk portfolio becomes increasingly difficult. Critical information exists in disparate systems and spreadsheets that are inaccessible to workers who are now working remotely. Businesses invariably end up spending days aggregating the data before they can analyze their risk.

Yet, many firms continue to rely on traditional, manually intensive methods and siloed legacy systems that have not kept pace with today’s demands. According to Commodity Technology Advisory Report, 80% of companies continue to use traditional, on-premise systems exacerbating the situation.

The right tools for the job

The inability to connect the dots between systems, data and people puts commodity risk management at a real disadvantage. To emerge as a stronger player, organizations need to think differently about managing risk. By executing on the following five tenets organizations will be better able to handle the steady stream of challenges and new risks they encounter.

Real time visibility:

With access to your most current data, you will be able to respond quickly and intelligently to market disruptions. Additionally, teams will be able to define risk limit policies against position, P&L, and VaR, track breaches against set limits with real-time alerts. By knowing the moment a limit was breached, you will reduce your risk by isolating the problem faster by analysing the breach by trader, profit center, and even at trading desk level.

AI and Machine Learning:

To accelerate risk decisions and compensate for limited risk skills in most organizations, systems must become smarter. There are several use cases today that demonstrate the value of AI and Machine Learning algorithms in leveraging vast amounts of data. A case in point, when a large oil facility in eastern in Europe was attacked, it caused oil prices to rise due to expected supply shortages. By analyzing historic data with Machine Learning models, you could help predict the time it would take for the prices to normalize in just a matter of minutes.

Getting ahead by simulating potential outcomes:

Analyzing historical data and running simulations help reproduce scenarios to see the impact of your decisions before they actually occur. Users can analyze VAR scenarios at 90, 95 and 99% confidence intervals across a one-day holding period using Monte Carlo, historical simulation and parametric methods. They can also create flexible VAR risk portfolios and multiple market scenarios to predict the potential impact of price shocks and ‘what-if’ trades.

Leveraging the power of automation:

The best way to ensure compliance is to have a consistent approach and automate regulatory reporting. It frees up your time to concentrate on more strategic activities such as exception handling, change management or process improvement.

Automated alerts and integration with trade repositories:

With so much going on, automated workflows can help increase the efficiency and accuracy of transactions and controls. While automation helps with straight through processing allowing you to track status in real time and meet reporting deadlines, it also lets you eliminate manual, repetitive tasks so that you can focus on addressing more critical risk areas. Users could also set up alerts on acceptances or rejections from the trade repository to ensure you take prompt actions to resolve issues across a wide variety of regulatory reports including EMIR, CFTC, MiFiD II, ICE, MAR, Dodd Frank, and FinFrag.

“Now, imagine doing all this using a spreadsheet when your data is scattered in disparate systems. Collating it alone would take days – precious time that could be used for strategizing.”

How should businesses look to incorporating them into their existing systems without completely disrupting the business? Upgrade or custom extensions? Neither

Legacy systems cannot easily add functionality without creating data silos.  Implementing a new CTRM/ETRM system takes months – sometimes more than a year – and requires input from IT and other departments and it takes too long to get people up to speed on a new system.

Upgrading heavily customized or on-premise system can be cost prohibitive, interrupt operations, require additional IT resources to implement, difficult to schedule and time consuming.

Technology has evolved. You need the right tools to expand your current system to ensure continued success and profitability. There is a better way and you have more choices today.

A digital era requires a cloud driven solution

Cloud driven solutions are by nature composable. Platform driven, configurable applications can enable you to expand your CTRM system without disrupting the current system or losing a lot of time with expensive upgrades.

Because they are developed independently, cloud applications are not tied to the infrastructure. The architecture makes it easier to flex and add more functionalities and users seamlessly without disrupting the business.

In summary, the cloud-native approach is all about moving fast and moving smart. Because the applications can be implemented quickly, you can add any functionality fast and be able to build more visibility in to your operations in a few weeks.

We invite you to explore Eka’s Cloud Platform, where our customers are benefitting from solutions for risk and compliance that are embedded with years of deep domain knowledge.  There is a suite of applications to choose from. If you don’t find what you need, you can also build your own applications with minimal or no coding. The platform delivers all the functionality you need at a fraction of cost and 50% shorter implementations. Connect with us to learn more about Eka’s Risk & Compliance solutions.

Other resources

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Although commodity markets have always been temperamental, the challenges today are unprecedented given the pandemic, geopolitical tension and regulatory changes, occurring at the same time.

Read more