On the 10th anniversary of the start of the financial crisis, Steve Wilcockson, Financial Services Industry Lead at MathWorks, comments on the regulatory progress that has been made in the sector as well as what needs to be done in the future to prevent another economic crash.
“Hindsight is a great thing. Ten years ago today, BNP Paribas was the first major bank to acknowledge the risk of exposure to the sub-prime mortgage market, and looking back we can attribute the financial crisis in part to model complexity and systemic obfuscation in the usually valuable derivatives and credit markets. A decade on, regulators and banks have tackled those problems well, but the industry now heads into a new bubble of artificial intelligence, even bigger data, crypto-currencies, robo-advisors and a proliferating patchwork of confusing, unsourced and often poorly-supported computer languages, putting the international population at risk of experiencing new global financial and economic crises.
“To maintain the industry’s public good of wealth creation, liquidity provision and sound money management, financial services must look to how “high integrity” medical and automotive industries address model governance. While model and data governance have been elevated in regulations such as TRIM, BCBS 239, Solvency II and the PRA Stress Test guidance, regulators and all industry participants on sell- and buy-sides must work harder to drive thorough model governance standards. Financial risk management can and should lead the industry in this regard.”