Less than a fifth of asset management professionals believe the financial services industry is effective at managing model risks, according to research.
A survey of 68 executives in the asset management industry reported 18% of respondents felt the financial services industry was "effective" at managing risks and 85% viewed model risks management as a "significant" challenge.
The research, conducted by specialist data management firm ClusterSeven, found 79% felt a high dependency on models posed a significant business risk to financial institutions.
The firm said only a third (31%) viewed model risks management as a "priority" for financial institutions and 29% said they were "confident" of the control regarding data input and manipulations at their own firms.
Ralph Baxter, CEO of ClusterSeven, said: "While the use of models has become integral within the financial services industry, this dependency has brought about a raft of risks that pose significant threats to a business if not managed effectively. The challenge is that as models have grown in number, complexity and sophistication, so has the risk that they may contain errors or be implemented incorrectly."
In terms of spending, the majority (85%) of asset management professionals believed spending on compliance and risk would increase over the next three years. The survey also found 61% of respondents said spending would be on software solutions, while 53% and 46% said spending would be on regulatory fees and staff training, respectively.
Baxter said: "It is clear that model usage has become a significant focal point for a large number of people and stakeholders in the asset management industry."