Riskfuel: transforming the way derivatives traders do business

A vibrant fintech ecosystem and strong end-to-end government support are just two reasons Riskfuel chose to locate its groundbreaking company in Toronto

A small Toronto fintech firm has solved a big problem banks worldwide have had for decades: how to accurately value and risk-manage their large and complicated derivatives portfolios.

Riskfuel is transforming how valuation adjustments are made.

Until now, valuation has been done using slow and expensive-to-run financial models, which deliver information that’s already old by the time it gets to the traders’ desks, and it gets older as the day progresses.

Using groundbreaking artificial intelligence (AI) technology, Riskfuel speeds up those models—conservatively by one million times—so that what once took all night can now be completed in mere seconds.

For banks, the advantages are obvious: greater accuracy, a significant reduction in operating costs—think one server running for minutes versus thousands running for hours, an appreciably smaller environmental footprint, and new business opportunities.

So, how has Riskfuel accomplished what no other company has been able to?

It all comes down to the right person at the right time—in the right place.

Riskfuel co-founder and CEO Ryan Ferguson was 15 years into a career as a derivatives trader at Scotia Bank in Toronto when he found himself in a conversation with a colleague about how to tackle models for an X-Value Adjustment (XVA) system.

This conversation triggered a memory for Ferguson—his master’s thesis on an application of neural networks—and, just like that, he realized he had a potential solution to the problem of slow models.

Ferguson and his wife Marian, who met when they were engineering students at the University of Waterloo, had always planned to start their own company. Realizing he had a solution to an age-old XVA challenge created the ideal opportunity for the couple to embark on their dream venture. In 2019, Riskfuel was born.

While the company could point to success in small trials, convincing banks was difficult at first. “There are a lot of layers to go through,” says Marian Ferguson, the company’s chief administration officer.

Then Scotiabank, closely followed by the Bank of Montreal (BMO), gave the startup a chance—and Riskfuel was now in operation.

Since then, the company has gained clients in North America, Europe and Asia, and has won numerous awards. The latest award was the Best Use of Machine Learning/AI at the 2023 Risk Markets Technology Awards, recognizing the most outstanding achievements in market risk, trading and investment risk technologies.

Toronto-Waterloo provides end-to-end support for fintech businesses

Marian Ferguson points to the firm’s location in Toronto as critical to the company’s success.

“Toronto gives us access to everything we need, starting with high-tech talent,” she says. “We have no trouble finding, and keeping, really smart engineers in AI, computer science and finance, thanks to our proximity to both the universities of Toronto and Waterloo, both of which are well-regarded for their outstanding engineering faculties.”

She adds, “Waterloo operates a co-op program, and we make use of it to ‘test drive’ potential hires.” Helping to offset the costs is the Ontario Co-operative Education tax credit.

Toronto-Waterloo is also a global hub for financial technology—one of the largest in North America. It’s home to the Canadian headquarters of more than half the world’s top 10 banks by market capitalization, which makes it an ideal location for a company like Riskfuel.

As an R&D-intensive company, Riskfuel also benefits from its location in Toronto.

“We’re doing R&D continuously,” says Ferguson. “It’s how we keep a moat around us. We make use of SR&ED tax credits, as well as the Ontario Research and Development Tax Credit, and the savings for us are significant.” This benefit allows the company to re-invest what it saves into more R&D.

As an added financial incentive, Riskfuel accessed the Mitacs Accelerate program, which provides funding for graduate students and post-doctoral fellows with the specialized research expertise the company requires.

Finally, Ferguson points to Toronto’s innovation hub MaRS and business incubator DMZ as a source of early support. “We knew we had a winning idea, but we’d never run a company before. They provided critical help with the business aspects. They also helped with advice on sales and marketing and provided connections to potential investors and customers.”

After four years in business, Riskfuel is excited about what lies ahead: getting new clients, improving their software and building on the potential that fast models have unlocked.

Learn more about Ontario’s expanding fintech sector.