What can risk managers at financial institutions learn from the systems employed by traders?

Abstract

Risk managers place a great deal of trust and reliance in systems employed by traders. In fact, given the complexity of trading systems it is hard not to do so. But reliance on information coming from these systems should not be the sole basis for risk management decisions. Instead, risk managers should understand the processes surrounding these systems and recognise where risk in data quality and accuracy exists. By doing so, their risk assessment and actions will be driven by better informed decisions and less dependency only on trust and reliance. This paper highlights common technology processes and practices that create risk in the systems employed by traders, and provides valuable information that risk managers can utilise to develop a higher level of risk awareness and, in some cases, even prevent some risks from materialising.