Expert stresses the importance of having the right strategy and other factors to complement the technology component

Dubai: There is only so much risk management systems can do to limit the effects of individual decision-making. In fact technology has to struggle to keep pace with the market's ingenuity, says Wissam Khoury, Managing Director Middle East, Sungard Financial Systems.

GULF NEWS: Why did the risk management systems in general use not prevent the recent Western banking collapse? Has the industry been able to adequately address the issues raised?

WISSAM KHOURY: It's a very valid question. But you have to realise that the near-implementation of a risk management system doesn't prevent anything from happening. There is something in the middle. It is how you use a risk management system. So technology and risk management systems are meant to help the decision-making process, but they don't make the decision themselves.

Having a proper risk management system can give enough information for the decision-maker in real time to make the adequate decisions. [But] he might ignore these signs. He might not look at these signs initially. Obviously if you don't have a risk management system you are definitely exposed. If you do have one, then you have the right tools and right means, but you should have the right strategy and the right internal processes to mitigate these risks.

Whether the industry has been able to address the issues raised — it is evolving like everything else. The financial marketsare evolving. The instruments that we trade today are different from the ones we traded three or ten years back. So, as the financial market gets more complex, the risk management tools have to get more complex. The issues I would say are not 100 per cent resolved... because it's an evolving thing.

To what extent can risk management systems offset or compensate for human error?

First of all, the collapse of the banking sector was not a result of human error. It was a hole in the financial system, it was a black spot that the light did not shine on so that we could have seen it early enough to solve it.

So it was not one person's mistake. But if you look at it from how risk management can moderate the scope for human error — as one individual error — this is a valid question. When you talk about risk management, to simplify, three factors have to be taken into account: there is market risk, there is credit risk and operation risk.

Operations risk touches a bit on the human aspect. For example, one of the criteria that we help banks monitor is some of the human errors and how frequent these happen. A teller coming ten minutes late to his desk — how much would that cost the bank? Or the teller missing to put an instruction in a certain transaction — we count these, we monitor them, we see their effect and they are built into the value of the risk management of the bank.

How can risk management be preventive?

I would say using technology in general — be it in manufacturing product lines or in banking — you try as much as possible to eliminate the dependency on humans. Once you have advanced technological platforms, where for example you have one point of entry from the beginning right to the end and there is minimum intervention unless required, then you are eliminating human error.

To what extent is technology even driving business rather than just responding to business needs?

If I am forced to do a comparison, in the West the technology is driven by business needs. Here it is not so as much, because technology is created outside, in the West. Having said that, in emerging markets some have been more involved in technology than others because we don't have the legacy systems. We have the privilege of being "new technology": we can pick and choose and we can implement it. In the context of Gulf and UAE markets, it could be that [both aspects prevail], but it's more the other way here [technology as initiator]. Lots of banks are very innovative here, and they even challenge the technology provider. But, if I were to generalise, I will say that we localise or regionalise international experience to provide here locally.