20 December 2014

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Said Tabet - EMC

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The real problem behind bankers’ bonuses

06 August 2014  |  1016 views  |  1

Last week the media was divided in its coverage of the new measures around bankers’ bonuses with some saying they “don’t go far enough” and others saying they’re “unnecessarily convoluted” and the “emphasis on bonuses is being vastly over-emphasised”.

But the need for a 3, 5 or 7 year period to ‘discover’ excessive risk exposure in a world of real-time data underlines the core problem here – not that bankers are paid bonuses, but that banks lack the infrastructure and capability to derive real-time insight into their risk exposure and into the actions of their staff. This means that it is only possible to detect and take action on the basis of this exposure long after the fact – by which time money may be lost and the damage may be done.

More intelligent approaches to risk management enabled by big data analytics and agility, empowered by better standards and better integration of different systems and applications will provide a much stronger, real-time handle on sector risk exposure. This in turn will support growth and push the boundaries of competitiveness further, as confident assessments on strategy and tactical activity can be made based on what’s actually happening, and what risks the bank is actually exposed to.

There’s a huge imperative that regulation in the financial services sector is focused on driving the sector to a degree of best practice. Leveraging technology and applying best practice to data and metadata will ultimately help with systemic risk as well. Arguably this is more important than providing generic personal or corporate disincentives to cavalier behaviour. The regulatory framework needs to match that of the progress technology is making and we need financial regulation for the 21st century, not that of 20 years ago. Ultimately this will help make this sector more efficient and more effective - a win-win for all stakeholders.

TagsRisk & regulation

Comments: (1)

Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 06 August, 2014, 18:06

As a technology marketer, I'd love for technology to do a lot of things. But the operating word here is 'discover' and technology can't do anything about it. By definition, discover means finding out that a homeowner has defaulted on a mortgage on a future date (on the sale of which the banker pocketed bonus today). While technology can 'predict' the risk of default - with whatever degree of accuracy - in 2014, it can't 'discover' in 2014 that a default *has happened* 7 years later in 2021.

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job title Lead, Governance Risk and Compliance Strategy
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