A Knowledge Transfer Partnership helped financial trading company London Capital Group Holdings to improve their risk management procedures - increasing sales by £250,000 and leading to expected profit increases of £2.2 million.

Impacts

  • As a result of a Knowledge Transfer Partnership (KTP) with the University of Southampton, the efficiency and effectiveness of London Capital Group’s (LCG) risk management decisions have increased significantly. Due to the client risk assessment model developed during the KTP, many hedging decisions are now automated - thus reducing costs.
  • The cost reductions have allowed the company to lower their prices, which has attracted new customers, particularly overseas clients.
  • In the first year of trading since the KTP, LCG reported an increase in sales of £250,000. LCG anticipate that their annual profits will increase by £2.2 million after three years.
  • The KTP improved LCG’s competitiveness, reduced their vulnerability to turbulent market conditions, increased their market share and the proportion of their business outside the UK.
  • Prior to the KTP, LCG staff only had the capacity to verify five per cent of clients' trades based on manual analysis; the KTP has increased this capacity to 100 per cent.
  • As a result of the KTP, traders now have a greater understanding of what makes a trade high risk, allowing them to make better hedging decisions.

The KTP has given us the ability to significantly improve our assessment of the risk posed by clients. This will enable us to be more resilient to the market conditions and to drive down our prices (spreads), thus enabling us to capture a far greater share of the international market. (Ricky Walia, Head of Risk at London Capital Group)

About the research

As part of a Knowledge Transfer Partnership funded by ESRC and Innovate UK, researchers from the University of Southampton worked with traders from London Capital Group Holdings plc, a leading provider of online financial trading services, to improve their risk management procedures. The company had collected extensive data about their clients but were not using it, instead relying on their traders’ subjective judgements when making calculations about risk.

The researchers, led by Professor Ming-Chien Sung with KTP Associate Juan-Carlos Moreno-Paredes, first set about improving the quality of the data, and developed an algorithm that 'cleaned' over 16 million records of client data. They then developed a client risk assessment model which ranked the company's clients in terms of risk, allowing LCG staff to quickly and efficiently identify their highest risk clients.

The model is able to predict investors' financial decision behaviours in real-time and identify high-risk clients with 86 per cent accuracy. The resource has revolutionised the way that the business operates, with the company taking the strategic decision to move towards intelligent, data-driven, real-time risk management in the future. To help them with this aim the company has since set up a data warehouse to house the data records.