A poll of professionals working in the financial services sector has found that only 14% are confident that their legacy technology systems can fulfill new stress testing requirements, reports Wolters Kluwer Financial Services.
The results came from a recent stress testing webinar held by the financial services technology company and are included in its newly-released white paper entitled ‘Stress Testing: Putting the Pieces Together to Solve an Increasingly Intricate Puzzle’.
The report examines today’s global stress testing environment and suggests that banks are missing an opportunity to embrace stress testing as a discipline that is good for business, as well as compliance.
Following the financial crisis, Wolters Kluwer FS notes that stress testing has become a prominent feature of many regulatory rubrics, from Basel III to IFRS 9 Financial Instruments to the Dodd-Frank Wall Street Reform and Consumer Protection Act in the US.
Although the added complexity will make stress testing more onerous, banks can view the requirements as a chance to integrate stress testing into an integrated risk management framework. As well as supporting regulatory compliance, such an approach serves a broader strategic purpose by encouraging a more stable and efficient entity, the report’s authors note.
“As stress testing becomes more intricate on a global level, more will be asked of the systems in place that monitor activities, gather data and apply models to analyse it,” says Richard Reeves, vice president of strategy for OneSumX at Wolters Kluwer FS.
“This is more than a compliance issue as stress testing fundamentally exists to evaluate how firms respond to a crisis. With the right systems in place there is an opportunity for firms to improve decision making, building stronger and more profitable institutions.”
Sentiment in the financial services sector deteriorated in the three months to September, as firms digested the challenges of lower interest rates and the uncertainty caused by the vote to leave the European Union (EU), according to the latest CBI/PwC Financial Services Survey.
However, a London summit on the industry’s introduction of the technology cautions that testing and acceptance are still at an early stage and firms should proceed with caution.
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