In 2003, 42 percent of large financial services providers plan to spend between $500,000 and $2.5 million on IT for risk management, accounting for up to 9.2 percent or more of the average 2003 IT budget, according to a survey by Gartner, Inc.
New regulations, market volatility and heightened exposure are forcing financial services providers to place increased focus on risk management.
"The elements of risk management have always been a concern for financial institutions, but during the past few years risk and risk management have become even more serious and complex issues and now have much greater visibility and priority within the organization," said Vincent Oliva, vice president and research director for Gartner. "Since ineffective risk management can have a serious negative impact on a financial institution's bottom line, it is now a critical, all-encompassing concern for the financial services industry."
In 2003, primary responsibilities for risk management strategies have shifted from individual departments to the corporate level. Centralized approaches to the management of risk data and associated technologies have been transferred to top executives to enable consistent and cost-effective IT support of risk initiatives.
"This new enterprise-wide view of risk management will dramatically affect the technical environment in financial services as IS organizations face enormous demands to deliver the necessary support," said Oliva. "Risk management initiatives will burden traditional financial services IT architectures, resulting in the risk management infrastructure being one of the top-three IT investment priorities for financial services providers through 2005."
The intensified concern with risk and the implementation of enterprise- level approaches to risk management are being driven by three critical, interlocking factors, according to Gartner:
1. Key legislative and regulatory initiatives such as the Sarbanes-Oxley Act of 2002, the USA PATRIOT Act of 2001, the Gramm-Leach-Bliley Financial Services Modernization Act of 1999, and the New Basel Capital Accord (Basel II) are providing pressure.
2. Increased concern is being applied as a result of more complex internal and external interdependencies, such as new business partnering models, more diverse product and service portfolios and multicultural markets and operations.
3. Market volatility, with turbulence in worldwide financial markets is forcing financial services decision-makers to take a more proactive and holistic view of their vulnerabilities and opportunities.
This survey was conducted by Gartner in November and December 2002 via phone interviews. The survey features insights from 83 respondents in the financial services sector of the United States.
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