Counterparty risk is a particularly complex factor, and does not lend itself easily to measurement and gradation. You can look at what has happened to a particular class of assets in the past, but comparing that with what will happen in the future is very difficult. A type of investment that may have been very risky in the past may be less risky in the future if, for example, the way it is regulated has been beefed up following a misselling scandal. Similarly the introduction of charge caps on a type of product could make it riskier, because the provider has to operate with less margin.
However good we think our solutions are, there is much more to risk than the number created by a risk-profiling tool. Yes these tools are helpful, but they do not tell us the entire story.
Andrew Storey is technical sales director at eValue
