Banks have been reluctant to handle data-heavy tasks such as credit risk analytics in the cloud, for understandable reasons. But firms such as CubeLogic hope this will change, given the rapid pace of new regulations, heightened risk management mandates and the potential of external economic shocks that can potentially change a bank’s exposure to potential credit peril faster than traditionally deployed risk systems can handle.
“Costs and time frame of IT deployment are a large part of risk…you get a long lead time before businesses can get their hands on new risk software,” says Lee Campbell, CTO of CubeLogic.
Speed and cost are CubeLogic’s argument to push its new “Cubes in the Cloud,” a private software as a service (Saas) product that enables firms to access real-time risk calculators, or ‘cubes,’ that use proprietary analytics to measure credit risk, workflow management, market risk and financial analysis. In addition to deploying these cubes onsite at the client, CubeLogic will also offer an alternative method in which the cubes are hosted by an IT partner, which will manage and deliver the analytics to the bank users via a web download. It’s designed to be faster method that requires less deployment time, maintenance and costs on behalf of the bank. CubeLogic is hoping the new product will help it expand in a competitive, quickly evolving risk tech market.
CubeLogic uses analytics and aggregation to help users measure current and future cash positions and run “what if” scenarios based on current conditions calculations, rather than basing calculations on overnight batch processing, which Campbell says results in the use of older, static data. Most of its clients have been investment banks and energy firms, though the firm is targeting consumer banks, anticipating counterparty risk needs arising from exposure to partner banks in distressed economies in Europe and elsewhere. One of its cubes, for example, enables banks to upload credit scoring models to measure counterparty risk. “It helps a bank figure out what happens to its position if a country or a bank in another country gets downgraded,” Campbell says.
The two-year-old firm offers these risk services via “cubes” containing analytics and data management tools that clients typically install internally. “Traditionally, we deploy these cubes into an organization’s IT environment,” Campbell says. To provide the faster “Cubes in the Cloud” service, CubeLogic is partnering with UK IT outsourcing firm called SoftCat. SoftCat provides managed IT services through a network operation center and data center to provide shared hosting –providing more than 150 clients with services ranging from telephone support to full IT infrastructure hosting. In the U.S., CubeLogic is looking to finalize deals with banks and an a similar managed service IT provider, though Campbell would not identify the firms that were part of discussions. “Cubes in the Cloud” is accessible via a secure socket layer (SSL) that can be accessed by most web browser and Microsoft Office products.
As CubeLogic looks to target retail banks and other financial institutions in the U.S., the firm faces competition from an entire industry of governance, risk and compliance (GRC) providers and business intelligence firms such as Oracle and SAS -- and many of these firms deliver their products to clients as a Saas. Risk analytics firm Axioma puts 99.9% of its computing on the cloud, specifically on Microsoft's Windows Azure platform. CubLogic also faces the reluctance of banks to outsource the actual management of data and IT infrastructure that use sensitive data or perform calculations for reporting to boards, auditors or regulators.
“A lot of banks wouldn’t have a large part of their core banking system hosted in an external environment no matter who was doing it,” Bernard Golden, CEO of Hyperstratus, a cloud computing consultant.
But Golden says there is the potential for that reluctance to loosen. The regulatory environment has become quite volatile. Dodd-Frank is a very fluid law that’s still being developed, which changes the IT requirements for banks in areas such as credit and operational risk, as well as reporting. And there are also economic risks that may require faster access to dynamic risk tools than can be provided by an internally hosted system.
“The more business pressure there is, the more agility is needed. You don’t have six months to put in a new capital request for a new system and do a deployment,” Golden says.
This story first appeared on the Bank Technology News web site.
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