by Bob Park, President and CEO, FINCAD
A worldwide re-examination of reporting fair values is under way by policymakers, standard-setters and those who must comply. The rise in prominence of risks, such as the counterparty credit risks inherent in holding derivatives, have spurred an era of reform and rethinking for all.
This has prompted treasurers to analyse financial risk exposures in entirely new ways. Further requirements to measure and disclose risks are imminent, but the practical aspects of how to measure, manage and disclose risk have yet to arrive at common answers. The market recognises risk, so it demands that risk be measured. Metrics such as Maximum Peak Exposures and Credit Value Adjustments are becoming better understood out of necessity.
Solution vendors are always eager to please when new needs emerge or old needs intensify, but what are the characteristics of a good solution for risk and compliance, and why is transparency key? The demand for openness is emerging in all aspects of regulatory reform and the rethinking of risk. Closed systems that perpetuate valuation risk will be challenged as corporate risk awareness and compliance capacity are scrutinised. The best practices of the future will be open, transparent and easily defended.