We talk to Riskinnov, an applied research company providing risk-management advice, about some of the key technologies that they see as real game-changers in the risk management space.
Tell us a bit about RiskInnov? How does what you are offering financial services firms (and others) differ in its approach / efficacy when it comes to managing risk?
Risk Regulation has come to absorb a large part of the financial services business. While compliance is often considered both a cost and constraint, we want to turn it into a source of marketing and profit.
In wealth management, for example, our software NERP7© creates the opportunity to make additional profit on private portfolio management and advisory. The originality of the brand and fun technology attracts young high and ultra-high net worth individuals while fully abiding to MIFID-II compliance.
In asset management, our Volpredict model forecasts assets risk more accurately than the VIX index, most econometric models and, obviously, mere intuition. This is an obvious source of profit in fund management while fulfilling transparency and, hence, related compliance.
We have extended beyond simply regulatory issues to embedding risk in decision making. In particular, strategic investment or project management decisions – the applicability of which extends beyond financial services. Our team is developing software which allows for selecting risky courses of action on the basis of the decision maker’s own risk-tolerance and objectives – as opposed to the analyst’s recommendations only.
That is what we call a bespoke decision-aid , the only way to maintain consistency in business risky decisions and thus enhancing expected profit. Some corporate leaders dreamed of it (see the ISO 31000 risk management norm) but we made it happen through software.
What are some of the key technologies that you see as real game-changers in the risk management space?
Key-technologies at Riskinnov Ltd. are a trinity: elicitation, mathematical psychology and econometric statistics (part of AI).
Elicitation is technique of mixed origin (economics and psychology) allowing individuals (investors as well as managers) to effectively reveal their true risk-tolerance.
Economic mathematical psychology is the subset of behavioural finance which can be modelled and made really and meaningfully operational.
Econometric statistics is a well-known discipline but we look, in particular, at the part of it which directly relates to market psychology and/or to AI.
Has your academic background in economics been more important in creating a new set of products and services or have they been driven by tech change?
In all our products, the innovative economic insight into economic decision making towards risk and uncertainty, as well as into market behaviour, is always connected to at least two of the three technologies evoked just above. It’s not a question of economic background or tech, it’s a question of economic background and tech.
In terms of the next generation of talent coming up the pipeline, do you see skills shortages in particular areas?
The most important and most rarely found skill is precisely the capacity of linking techniques to clear views of Man and markets in an innovative way. Nowadays, young people are equipped with better backgrounds in techniques than was the case in the past, but they often lose sight of the behaviour of Man and markets when building business models.
How would you excite young people around a career in financial services technology? What would you say to convince them that it is exciting and innovative?
It’s fascinating to dig into technological innovation, exploring human nature and the fundamental inter-relation which market relationships constitute. One could look at it as a sort of archaeological approach to behavioural finance!
There is a new frontier there to help business. That new frontier opens on many avenues, leading to innovation in economic thinking, experimental science, mathematical psychology, computer science, A.I. and econometrics, etc. etc.
And the highest level beyond that new frontier is always the least crowded!
Following your demo session at FinTECHTalents, will we find you and your team sampling craft beer or swaying to the music?
To be frank, our team is rather made of wine drinkers and opera lovers! But a young woman among our partners is a very gifted dancer and would sway to music with a lot of pleasure, while all of us pay tribute from time to time, with a lot of pleasure, to good beer drinking… that question is hardest to answer!
See our paper “On bespoke decision-aid under risk: the engineering behind preference elicitation”, Oxford IMA Journal of Management Mathematics, 29, 3, 253-273.