IBM RegTech Innovations

Driving innovation in risk management: Financial risk APIs designed and engineered for the cloud

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Today, most banks and other financial institutions use the internet as one of the primary ways of interacting with customers. For example, online banking and customer portals allow clients to access services without visiting a physical location or even talking to a person. While other industries are moving beyond the use of the internet as a communications channel and deploying business applications on the cloud, most of the core banking applications still run inside company-owned and managed data centers. However, the cloud offers many compelling advantages over traditional technology platforms. These include:

  1. The capability to scale compute resources up and down to meet demand
  2. The “pay as you go” model means that costs also scale up and down with demand
  3. It provides an agile platform for developing and deploying new applications.

Moving to the cloud has its benefits
Only applications that are specifically designed for the cloud can deliver on these benefits. IBM is pioneering the development of cloud-based micro services for financial risk. The financial risk APIs are a set of risk management services that are engineered for the cloud so that they can be scaled up and down on demand, are priced based on usage, and can be quickly combined and integrated into third-party code to create new applications.

These APIs are designed as a set of decomposable services that provide the key building blocks of a financial risk management system. Consisting of both stateless and stateful services, the suite includes a simulation service, a scenario generation service, an optimization service, and a data storage service. Each of these services utilizes key capabilities of the IBM Cloud to manage everything from security to scalability.

By utilizing modern technologies such as Docker and Kubernetes, the financial risk APIs can scale up and down based on the size of the job. This allows for new innovative operating models such as an SLA that says: “run my risk simulation in 4 hours, regardless of the size.” The simulation service can dynamically provision more resources for larger requests and fewer resources for smaller requests to maintain a constant 4 hour run window. These technologies also provide additional benefits by helping to support HA (high availability) and DR (disaster recovery.)

Pricing for the financial risk APIs is based on a utilization model. For example, the simulation service uses a CPU time metric in which the fee is a linear function of the amount of CPU time required to run the simulation. As a result, you don’t pay for hardware that is sitting idle 16-20 hours per day and you can also reduce or even eliminate the IT costs required to support and maintain an installation of on-premise software. Additionally, routine maintenance items such as upgrades are handled by the service, further reducing the total cost of ownership.

Agility is the key
Being agile is extremely important to keep pace with the continually evolving set of regulatory and business challenges facing financial firms. Fast development turnaround times are critical. The financial risk APIs are all RESTful which means they can easily be incorporated into a web application. The core services are engineered so that they can be used either independently or chained together, allowing the developer to assemble them in the manner required for his or her application. It is also possible to integrate them with in-house services, or services from other providers. As a result, developers can quickly construct new applications that utilize and combine the services in new ways. This means that the application developer can focus on the target user and build the UX that drives customer satisfaction without worrying about the underlying analytics and data. To illustrate this capability, we’ve built a number of demos and starter kits. For example, Portfolio Optimize is a sample app that allows a user to construct custom investment strategies based on a user’s goals/propensity (e.g. “no sin stocks,” “no socially irresponsible companies,” and other ESG metrics) while accounting for their risk tolerances, and Watson Wealth Management ChatBot is a sample app that demonstrates how to use a chatbot to allow investors to ask questions about their portfolio.

The financial risk APIs have been designed and engineered specifically for the IBM Cloud. They are an innovative suite of services that provide a core set of services that can be used to develop risk management solutions. Clients choosing to adopt them as part of a cloud migration strategy will benefit from the technological advantages of scalability, cost management, and development agility.

Director of Research, Innovation & Financial Engineering - Financial Risk

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