SimCorp JOURNAL OF APPLIED IT AND INVESTMENT MANAGEMENT
# Credit ratings:
IT in the spotlight
“The stakes however
have become considerably
heightened in light of
the recent volatility in
financial markets.”
2 “…Schroders has achieved key milestones in its London
operations with respect to its technological platform
following implementation of SimCorp Dimension as the
main accounting and repository tool. Risk management
routines have been responsive to the volatile market
environment and included heightened surveillance of
certain risks…”.
3 ‘Reviewing and Rating Asset Managers,’ Fitch Ratings
report, 29th May 2007.
4 ‘Approach to Evaluating and Assigning Investor
Manager Quality Ratings to Asset Management
Companies’, Moody’s Investor Service, 31st August 2005.
When Schroders Investment Management received a rating upgrade, the strength
of its technology platform was a key factor in the rating agency’s opinion.
by Richard Willsher
I
n November 2008 Fitch Ratings
revised the London-based asset
manager’s rating from M2 to M2+.
It noted, “The rating also factors in
the extent of Schroders research resources
and the solid risk management
framework. The addition of the ‘+’
modifier emphasises strength in the
company’s investment infrastructure and
the technological platform with notable
progress being made in data management
and integration (...)”2.
Other recent upgrades where Fitch made
specific reference to technology as a
determining factor included Groupama
Asset Management, RFM Investment
Management, Rothschild & Cie Gestion
and Robeco.
THE OXYGEN OF ASSET
MANAGEMENT
That Fitch should include technology in
its set of five rating categories3 - company
& staffing, risk management & controls,
portfolio management, investment
administration and technology - is not
altogether surprising. As Andrew Cox,
partner, and head of regulatory capital at
actuaries and consultants Lane Clark &
Peacock explains, “Data and information
is the oxygen of any kind of insurance or
asset management business. If you don’t
know what business you’re running then
how can you expect to run it well or to
react to changing environments and
situations? The ability to know what your
business is and to know what your
business is doing quickly is, we think,
vital. And that in the end comes down to
IT systems, most of all because there are
vast amounts of
information that any
asset manager will
need about all the
holdings of different
individuals, contracts
that they’ve got in
place etc. So the
ability to be able to
turn that vast amount
of very detailed
information into
usable and useful
summaries in a
matter of days rather
than weeks is pretty
important.”
Moody’s Investors
Service takes this
into account when evaluating and
assigning its Investor Manager Quality
ratings. “Moody’s believes,” it explains,
“that the successful operation of an
investment management firm relies also
on the ability of the firm to set up an
appropriate investment infrastructure,
including the use of real-time portfolio
management systems and various external
data service providers to deliver targeted
levels of portfolio management,
accounting, shareholder services, and
legal/control functions. In this area, face-
to-face discussions are reinforced by on-
site reviews.
April 2009 7
It is also recognised that the failure of IT
operations could threaten an investment
management company’s ability to manage
and monitor efficiently its offerings and
provide adequate client services. For this
reason, while stopping short of an
assessment of enterprise-wide operations
risk, we review the content and frequency
of back-up systems as well as the tests of
reliability of the key information feeds.”4
A spokesman for Standard & Poor’s
notes that, “For financial institutions
ratings, technology is not a major area of
focus [for us]. Rather, we are more
interested in the broader enterprise risk
management of the firm (risk governance,
credit risk etc.) and the degree to which
senior management can answer our
questions and present credible, timely
management reports. Within this, we do
also focus upon operational risk, which is
important to asset managers, for example
disaster recovery, how management
monitor operational risk etc.”
BASEL II / SOLVENCY II
The rating agencies then do not offer
themselves as detailed analysts of data
systems and technology platforms. It is
quite clear however that they do attach a
significant degree of importance to the
technological underpinning of an asset
management or fund management
business when apportioning ratings.
With hindsight it was inevitable that IT’s
role in risk management and capital
adequacy would become more important,
even before the financial crisis beginning
with the US sub-prime fiasco.
Information and the efficiency of systems
lie just below the surface of the criteria of
Basel II for non-life business and
Solvency II for insurance and asset
managers with a life insurance aspect to
them. There is a strong emphasis on risk
management and controls and on
operational risk in Basel ‘Pillar 1.’ And
8 April 2009 JOURNAL OF APPLIED IT AND INVESTMENT MANAGEMENT SimCorp

Credit ratings:
IT in the spotlight
quality information and robustness of
systems falls within the view of regulatory
oversight in ‘Pillar 2.’
The stakes however have become
considerably heightened in light of the
recent volatility in financial markets.
Anything other than a rapid response to
With the current pressure from regulators,
pressure from markets and pressure on
the models applied by rating agencies in
arriving at their ratings, it looks inevitable
that IT will be further thrust into the
spotlight. Ratings criteria will have to
place increased emphasis on technology,
even more than they currently do and

“...it is remarkable how difficult it is

to get information or even to find
someone who actually understands
what the information means.”
marking assets to market and speedy anything less will again draw criticism of
quantifying of positions poses a the rating agencies themselves. In the
reputational risk to an institution. rating process there will be winners and
losers. Ratings will go up or down
“Both Basel II and Solvency II are, in the depending on how flexible, scalable,
end, about risk management,” says robust and quick their systems are in the
Andrew Cox, “and the first step to way they respond to the stresses placed on
managing risk is identifying risk. The their asset managers’ businesses.
only way you do so is by knowing what
your business is doing, what risks it’s Richard Willsher is a London-based
running and what its exposures are and financial journalist and former investment
this derives from the IT system. There at banker.
the heart of it a good data system is a pre-
requisite for good risk management.” He
goes on to say that the UK’s Financial
Services Authority is particularly keen to
focus upon the integrity of data.

“From my personal experience in working

with clients to help them with both
regulatory capital and Solvency II,”
concludes Cox worryingly, “it is
remarkable how difficult it is to get
information or even to find someone who
actually understands what the information
means. There is a lot of room for
improvement. Different companies are at
different levels. Above all people must
not think that this is a solved problem.”