Operational Risk Management - Oracle · Operational Risk Management Fulfilling Basel II...
Transcript of Operational Risk Management - Oracle · Operational Risk Management Fulfilling Basel II...
Maurizio Bradlaw
June, 2003
Operational Risk ManagementFulfilling Basel II Requirements and Enhancing Business Control
Oracle AppsWorld 24th June 2003
2 - Operational Risk Presentation_Oracle_Appsworld - June 2003
Agenda
n Introduction to Capco
n Operational Risk - Market Challenges & Trends
n Capco‘s OR Framework and Approach
n Partners & Solution Overview - ORTOS
n Summary
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Capco is the first services and technology solutions provider exclusivelyfocused on forming the future of finance.
Global growth Focus
Capco’s business model Clients
n Capital marketsn Private client /
asset managementn Banking
Client segments
n Strategicn Marketingn Technologyn Academic
Alliances
Some of our new clients in 2001
Technology
FinancialServices
Consulting
We combine knowledge and experience from Financial Services, Consulting and Technologyindustries to deliver high quality end-to-end solutions to our clients
0
Jul-9
8
The Capital Markets Company is founded in Belgiumopening Antwerp officere
venu
e
120
100
80
40
60
20
Sep
-98
Dec
-98
Feb
-99
Mar
-99
Jun-
99
Oct
-99
Dec
-99
Jan-
00
Londonoffice
NYoffice
Parisoffice
Frankfurtoffice
Singaporeoffice
Headcount430
Headcount85
Dec
-00
Dec
-01
Headcount550
SFoffice
Bostonoffice
Headcount650
Jul -
02
MarketInfrastructure
BusinessInnovation
ProgramManagement
Technology
OperationalEfficiency and
Control
Thought Leadership
4 - Operational Risk Presentation_Oracle_Appsworld - June 2003
Agenda
n Introduction to Capco
n Operational Risk - Market Trends & Challenges
n Capco‘s OR Framework and Approach
n Partners & Solution Overview - ORTOS
n Summary
5 - Operational Risk Presentation_Oracle_Appsworld - June 2003
Credit RatingCompetition
InvestorsRegulation
Why is Operational Risk a pressing issue? Market TrendsThe banks that intend to adopt the Advanced Measurement Approach methodologyneed to hold a minimum of 3 years of loss data by December 2006
§ National Regulators have geared up to address ORon the basis of methodology, approach, reportingand system requirements – FSA CP142, NBA Q3
§ Further pressure is being generated fromledgistlation „Sarbanes-Oxley Act 2002“
Operational risk will provide comparability ofinternal operations across peer banking group
§ WTC – disaster recovery & know-your-client§ Enron – SPV and legal entity oversight§ Anderson & Tyco – corporate governance§ Allied Irish Bank – control and oversight
There has been an increased expectation in thescope of operational risk with each significantfinancial loss
§ Recent investment in operational risk technologiesand the development of methodologies by theagencies
§ Recent statements link operational risk andcorporate governance
Operational risk factors will most likely beginto influence the overall credit rating
§ Your bank will be expected to use an AdvancedMeasurement Approach
§ Capco believes that most banks will have parts ofthe loss database populated with 2 to 3 years ofhistoric data
Most peer western banks have begun their efforts
OperationalRisk Drivers
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Present Challenges in addressing Operational RiskOperational Risk and the fulfillment of Basel II regulations is one of themajor challenges facing financial institutions for 2003
n There is no standard approach in the market and even the regulators will adjust theirrequirements along the “best effort” concept (Motto to the AMA ”Let one thousand flowersbloom”)
n The regulators are still finalizing requirements and there are discrepancies betweeninternational regulatory bodies – creating a difficult environment for multi-nationalcompanies to plan for solutions which meet all requirements
n The majority of banks have done little in recent years to address the specific ORregulatory issues faced, believing that the basic approach can always be adhered to.Though some banks are well ahead with AMA and depending on the size and grouping ofbanks, it is their peers which are the benchmark
n Main issues presently faced internally by the majority of financial institutes;n Understanding the OR Mandate and choosing a concise and structured approachn Comprehensive framework from Governance, over solution to mitigation incl. Loss DB, Self Assessment,
KRI‘s and meaningful reporting standardn Lack of senior management attention – reasons of understanding & market/priorityn Attaining data and certifying data quality and quantificationn Business motivation – bringing value added to heads of businessn Budgetary issues – the business case is more qualitative then quantativen Striking the right balance between the information required and the analysis effortn Different approaches within a single financial institution – Usually to be found between IB and Corporate
leveln Having the right personnel at the right places -Creating a risk aware culture
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Agenda
n Introduction to Capco
n Operational Risk - Market Trends & Challenges
n Capco‘s OR Framework and Approach
n Partners & Solution Overview - ORTOS
n Summary
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Definition of Operational RiskThe publication of the New Basel Capital Accord has resulted in the recognition ofoperational risk as a formal discipline and has resolved much of the debate over itsdefinition
Basel defines operational risk:
“The risk of loss resulting frominadequate or failed internalprocesses, people and systemsor from external events.”
Capco’s expanded definition of operational risk:
“The risk of a loss resultingfrom inadequacies or failures inprocesses or projects due totechnology, staff, organizationor external factors.”
In preparation, banks and financial institutions need to meet the proposedrequirements by 2006, this requires decisions to be taken now!
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The Basel Committee for Banking Supervisionsets with Basel II new requirementsconcerning the identification, collection andevaluation of operational risks. Banks musttherefore:
§ evaluate their operational risks (assess)
§ collate their operational losses
§ have indicators for operational risk
§ put aside capital to cover operational risks
§ publish reports about the handling ofoperational risk
Requirements of Basel-II
Basel II requirements for Operational RiskThe defined requirements stated by the BIS are mandatory for all banks and financialinstitutions and include a series of actions which can be implemented using differentapproaches
Basel II implementation is mandatory and presently scheduled for December 2006. Though itis not the BIS that is putting the most pressure on financial institutions. The pressure iscoming from Investors, Competition and Credit Rating Agencies
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Operational RiskManagement consists of :
n Governance: Establishment ofpolicies and the definition of theOR framework to implementthese policies
n Identification: Stipulation anddocumentation of risk exposurealong process and project lines
n Measurement: Qualification andquantification of risk and loss infinancial value and quality
n Monitoring: Identification,tracking and control of riskevents and resolution thereof
n Mitigation: Proactive mgmt. ofrisk exposure
Identification Measurement Monitoring MitigationGovernance
Self Assessment
Capture of Losses
• ImproveProcesses
• EnhanceTechnology
• BusinessContinuityPlanning
• EnhanceBusinessControls
• ProjectQualityAssurance
• ProjectReadinessAssessment
• BoardReporting
• RegulatoryReporting
• QualityAssurance
• CapitalAllocation
• Consisten-cy acrossGroup
• Independ-ent Review
• AuditControl Economic Capital
Key Risk Indicators
Process Mapping
Strategy &Design
Implementation Mitigation
Operational Risk Management FW– Overview of Building blocksCapco has developed a pragmatic framework that entails a set of tools to govern, identify,measure and monitor operational risks as well as a suite of solutions to mitigate operationalrisk exposures - according to the Advanced Measurement Approach (AMA) to minimizerequired economic capital
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What is it?
Why do we need it?
How does it work?
Mapping of business core and support processes,IT-Systems, external suppliers, organizationaldependencies and projects to product lines,organizational units and locations
n To define basis for structured self-assessment
n To assign operational losses
n To anchor key risk indicators
n To gain organizational oversight
n To map product lines to standard businesslines (Basel II)
n Gather products per location and org. unit
n Gather processes, IT-systems, projects etc.
n Assign processes, IT-systems, projects etc. toproducts
Identification Measurement Monitoring MitigationGovernance
Self Assessment
Capture of Losses
• Improve Processes
• Enhance Technology
• Business Continuity Planning
• Enhance Business Controls
• Project Quality Assurance
• Project Readiness Assessment
• Board Reporting
• Regulatory Reporting
• Quality Assurance
• Capital Allocation
• Consisten-cy across Group
• Independ-ent Review
• Audit Control Economic Capital
Key Risk Indicators
Process Mapping
Strategy & Design
Implementation Mitigation
Identification Measurement Monitoring MitigationGovernance
Self Assessment
Capture of Losses
• Improve Processes
• Enhance Technology
• Business Continuity Planning
• Enhance Business Controls
• Project Quality Assurance
• Project Readiness Assessment
• Board Reporting
• Regulatory Reporting
• Quality Assurance
• Capital Allocation
• Consisten-cy across Group
• Independ-ent Review
• Audit Control Economic Capital
Key Risk Indicators
Process Mapping
Strategy & Design
Implementation Mitigation
Building Blocks in Detail - Process MappingThe Process Mapping consists of a group-wide survey of processes and projectsaccording to the product flows and staff tasks of a financial institution.
Process Mapping
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What is it?
Why do we need it?
How does it work?
Assessment of operational risks and quality inbusiness processes and projects structured byrisk categories, such as technology, humanresources, organization, external factors.
n To gain the operational risk profile per product,organizational unit and / or location
n To identify and prioritize need for managementaction or attention
n To provide for an early warning system
n To assign economic capital (and to facilitateproduct pricing)
n Define and construct questionnaire
n Identify and set up users
n Have questionnaires assesses and approved
n Assure quality, aggregate and report
Identification Measurement Monitoring MitigationGovernance
Self Assessment
Capture of Losses
• Improve Processes
• Enhance Technology
• Business Continuity Planning
• Enhance Business Controls
• Project Quality Assurance
• Project Readiness Assessment
• Board Reporting
• Regulatory Reporting
• Quality Assurance
• Capital Allocation
• Consisten-cy across Group
• Independ-ent Review
• Audit Control Economic Capital
Key Risk Indicators
Process Mapping
Strategy & Design
Implementation Mitigation
Identification Measurement Monitoring MitigationGovernance
Self Assessment
Capture of Losses
• Improve Processes
• Enhance Technology
• Business Continuity Planning
• Enhance Business Controls
• Project Quality Assurance
• Project Readiness Assessment
• Board Reporting
• Regulatory Reporting
• Quality Assurance
• Capital Allocation
• Consisten-cy across Group
• Independ-ent Review
• Audit Control Economic Capital
Key Risk Indicators
Process Mapping
Strategy & Design
Implementation Mitigation
Self Assessment
Building Blocks in Detail - Self AssessmentThe Self Assessment captures qualitative and quantitative information to estimatepotential losses thereby including valuable comments. It also is the underlying toolfor the evaluation of Economic Capital institution
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What is it?
Why do we need it?
How does it work?
Collection of operational losses in businessprocesses and projects structured by riskcategories, such as technology, human resources,organization, external factors.
n To analyze organizational weaknesses perproduct, organizational unit and / or location
n To identify and prioritize need for managementaction or attention
n To validate economic capital
n Identify loss booking procedures and accounts
n Identify responsible people
n Replace existing manual procedures with losscollection workflow
n Coordinate with Internal Audit, Insurance andCompliance
Identification Measurement Monitoring MitigationGovernance
Self Assessment
Capture of Losses
• Improve Processes
• Enhance Technology
• Business Continuity Planning
• Enhance Business Controls
• Project Quality Assurance
• Project Readiness Assessment
• Board Reporting
• Regulatory Reporting
• Quality Assurance
• Capital Allocation
• Consisten-cy across Group
• Independ-ent Review
• Audit Control Economic Capital
Key Risk Indicators
Process Mapping
Strategy & Design
Implementation Mitigation
Identification Measurement Monitoring MitigationGovernance
Self Assessment
Capture of Losses
• Improve Processes
• Enhance Technology
• Business Continuity Planning
• Enhance Business Controls
• Project Quality Assurance
• Project Readiness Assessment
• Board Reporting
• Regulatory Reporting
• Quality Assurance
• Capital Allocation
• Consisten-cy across Group
• Independ-ent Review
• Audit Control Economic Capital
Key Risk Indicators
Process Mapping
Strategy & Design
Implementation Mitigation
Capture of Losses
Building Blocks in Detail - Capture of LossesOccurred losses must be correctly stored and categorized along Basel-II requirementsin a central database, that can either be used as a quality check for the selfassessment results or as the evaluation data for Economic capital calculation
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What is it?
Why do we need it?
How does it work?
Collection of relevant and measurable key riskand key performance indicators (such as e.g.Nostro breaks, open positions, staff turnover,gross income)
n To monitor organizational situations closelyon a day-to-day basis
n To analyze identified operational risks moreclosely
n To provide for early warning signals
n Identify key risk or key performance indicators
n Determine critical limits
n Notify responsible manager if indicator breaksthrough limits
Identification Measurement Monitoring MitigationGovernance
Self Assessment
Capture of Losses
• Improve Processes
• Enhance Technology
• Business Continuity Planning
• Enhance Business Controls
• Project Quality Assurance
• Project Readiness Assessment
• Board Reporting
• Regulatory Reporting
• Quality Assurance
• Capital Allocation
• Consisten-cy across Group
• Independ-ent Review
• Audit Control Economic Capital
Key Risk Indicators
Process Mapping
Strategy & Design
Implementation Mitigation
Identification Measurement Monitoring MitigationGovernance
Self Assessment
Capture of Losses
• Improve Processes
• Enhance Technology
• Business Continuity Planning
• Enhance Business Controls
• Project Quality Assurance
• Project Readiness Assessment
• Board Reporting
• Regulatory Reporting
• Quality Assurance
• Capital Allocation
• Consisten-cy across Group
• Independ-ent Review
• Audit Control Economic Capital
Key Risk Indicators
Process Mapping
Strategy & Design
Implementation Mitigation
Building Blocks in Detail - Key Risk IndicatorsThe Key risk indicators need t be time effective, meaning the more due noticegiven the more effective the KRI in enabling losses to be avoided
Key Risk Indicators
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What is it?
Why do we need it?
How does it work?
Compute Economic Capital per location,organizational unit or product line or per riskcategory such as technology, human resources,organization or external factors
n To aggregate and compare the operational riskbetween organizational entities
n To steer the businesses accordingly
n To measure overall performance (EVA, RaRoC)
n To allocate capital
n Perform self-assessment
n Assure quality of results
n Compute economic capital
n Validate with loss data and other statistics andnon-statistics
Identification Measurement Monitoring MitigationGovernance
Self Assessment
Capture of Losses
• Improve Processes
• Enhance Technology
• Business Continuity Planning
• Enhance Business Controls
• Project Quality Assurance
• Project Readiness Assessment
• Board Reporting
• Regulatory Reporting
• Quality Assurance
• Capital Allocation
• Consisten-cy across Group
• Independ-ent Review
• Audit Control Economic Capital
Key Risk Indicators
Process Mapping
Strategy & Design
Implementation Mitigation
Identification Measurement Monitoring MitigationGovernance
Self Assessment
Capture of Losses
• Improve Processes
• Enhance Technology
• Business Continuity Planning
• Enhance Business Controls
• Project Quality Assurance
• Project Readiness Assessment
• Board Reporting
• Regulatory Reporting
• Quality Assurance
• Capital Allocation
• Consisten-cy across Group
• Independ-ent Review
• Audit Control Economic Capital
Key Risk Indicators
Process Mapping
Strategy & Design
Implementation Mitigation
Economic Capital
Building Blocks in Detail - Economic CapitalThe evaluation of economic capital can be based on post analysis using loss data,or pre-analysis using the prognoses results gained from the self assessment
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Realization Cycle
Deliverables:• OR Vision Paper• OR Corporate Policy• OR Management
Framework
• Application Decision• Org/ Prod/Loc Trees• Business process maps• Self-assessment
questionnaire• Operational loss
database• Economic capital
calculator• Customized
management reports
• Exposure prioritization• Mitigation strategy• Mitigation program plan
Vision/Strategy
Phase II
Approximate time in Months
Wor
k st
ream
s
Realisation /ImplementationIdentification, Measurement and Monitoring
Operational Risk Mitigation
Phase IIIPhase I
2 12 N
Governance
Bank Structure
Loss Data
SelfAssessment
KRI
EconomicCapital
Reporting
4 6 8 10
Strategy &Design
MitigationManagement
• Products/Processes
• Organization
• Location
Realisation and Implementation ApproachThe full implementation time-frame depends on the organization’soperational risk experience and operations complexity in terms ofproducts, organization and geography
Example
PackageSelection Build
Buy
Identification Measurement Monitoring MitigationGovernance
Self Assessment
Capture of Losses
• ImproveProcesses
• EnhanceTechnology
• BusinessContinuityPlanning
• EnhanceBusinessControls
• ProjectQualityAssurance
• ProjectReadinessAssessment
• BoardReporting
• RegulatoryReporting
• QualityAssurance
• CapitalAllocation
• Consisten-cy acrossGroup
• Independ -ent Review
• AuditControl Economic Capital
Key Risk Indicators
Process Mapping
Strategy &Design
Implementation Mitigation
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Agenda
n Introduction to Capco
n Operational Risk - Market Trends & Challenges
n Capco‘s OR Framework and Approach
n OR Solution Overview - ORTOS
n Summary
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Capco’s building block approach supports the basic, the standard and theAdvanced Management approach (AMA) methodologies.
Thereby offering an encompassing and made to fit solution with the rightsoftware to match the clients needs
Align the blocks to Risk Management Software Solutions on themarket , depending on a financial institutions business requirementsand project lifecycle
Identification Measurement Monitoring MitigationGovernance
Self Assessment
Capture of Losses
• ImproveProcesses
• EnhanceTechnology
• BusinessContinuityPlanning
• EnhanceBusinessControls
• ProjectQualityAssurance
• ProjectReadinessAssessment
• BoardReporting
• RegulatoryReporting
• QualityAssurance
• CapitalAllocation
• Consisten-cy acrossGroup
• Independ-ent Review
• AuditControl Economic Capital
Key Risk Indicators
Process Mapping
Strategy &Design
Implementation Mitigation
Business Building Blocks
+ KRI, EC & Reporting -Full Solutions
•Raft Radar
•SWORD
•ORTOS* - Incl. Process Mapping•Interexa* - Incl. Process Mapping
Process Mapping• Operational Risk Workbench
• J-PORT• GORMS
• C4i™
• Finesse
• Principia System forOperational Risk
• Macgregor Financial TradingPlatform (MFTP)
• SAP
+ Loss Database•Accord•Active Risk Manager
•CARD®map
•Enterprise Risk Management•EQECAT
•Operational Risk Co-Assessor(ORCAS)•OpRisk Analytics, LLC
•OpVision
•GFT Clarity
Self Assessment•Accord
•Active Risk Manager•CARD®map
•Enterprise Risk Management
•EQECAT
•Operational Risk Co-Assessor(ORCAS)
•OpRisk Analytics, LLC
•OpVision•GFT Clarity
Example
s
Market Software Solution
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ORTOS Operational Risk Tool Suite – Modules OverviewORTOS offers a complete corporate wide solution for Basel II OR and relatedManagement needs on a tried, tested and implemented platform
STORM
TESSA
ORECG
OLD
KO
RIS
ORMIS
STORM -Support Tool for OR Mapping
TESSA -Technical Structured Self-Assessment
GOLD -Global OR Loss Database
KORIS -Key Operational Risk Indicator System
OREC -Operational Risk Economic Capital
ORMIS -OR Management Information System
ORTOS
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STORM - Key Functionality'sProcess Mapping
Administration of trees fororg-units, locations, products and risk categories
Administration of trees fororg-units, locations, products and risk categories
Mapping of StandardBusiness Lines asrequired by Basel II
Mapping of StandardBusiness Lines asrequired by Basel II
Visualisation of organisationVisualisation of organisation
Inventory of productsand processesInventory of productsand processes
Comfortable user interfacewith drag & dropComfortable user interfacewith drag & drop
STORM(Product Flow Mapping)
OREC(OR Economic Capital)
GO
LD(L
oss
Dat
abas
e)
KO
RIS
(Key
Ris
k In
dic
ators
)
ORMIS(OR Management Info. System)
TESSA
(Str
uct
ure
d S
elf
Ass
essm
ent)
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GOLD - Key Functionality'sOperational Loss Collection / Analysis
Collection of allloss detailsCollection of allloss details
Graphical management reportsGraphical management reports
Loss categorisationLoss categorisation
Correct assignment, split and grouping of losses to org-units,location, product
Correct assignment, split and grouping of losses to org-units,location, product
Support of theorganisationalworkflow
Support of theorganisationalworkflow
STORM(Product Flow Mapping)
OREC(OR Economic Capital)
GO
LD(L
oss
Data
base
)
KO
RIS
(Key
Ris
k In
dic
ators
)
ORMIS(OR Management Info. System)
TES
SA
(Str
uct
ure
d Sel
f
Ass
essm
ent)
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TESSA - Key Functionality'sStructured Self-Assessment
Answering ofquestionnairesAnswering ofquestionnaires
Report selection &Risk reportingReport selection &Risk reporting
Set-up of questionnairesand administrationSet-up of questionnairesand administration
Identification &adminstration of usersIdentification &adminstration of users
STORM(Product Flow Mapping)
OREC(OR Economic Capital)
GO
LD(L
oss
Dat
abas
e)
KO
RIS
(Key
Ris
k In
dic
ators
)
ORMIS(OR Management Info. System)
TESSA
(Str
uct
ure
d S
elf
Ass
essm
ent)
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KORIS - Key Functionality's Key Risk Indicators
GraphicalKRI developmentGraphicalKRI development
Extensive search functionExtensive search function
Action steeringAction steering
Specific definition of indicators fororg-unit, location, product or process
Specific definition of indicators fororg-unit, location, product or process
Definition of individualwarning and critical levelsDefinition of individualwarning and critical levels
STORM(Product Flow Mapping)
OREC(OR Economic Capital)
GO
LD(L
oss
Dat
abas
e)
KO
RIS
(Key
Ris
k In
dic
ators
)
ORMIS(OR Management Info. System)
TES
SA
(Str
uct
ure
d Sel
f
Ass
essm
ent)
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OREC - Key Functionality'sOperational Risk Economic Capital
Choice of parameters of the model dependent on the individual risk profileChoice of parameters of the model dependent on the individual risk profile
Stable, robust, consistent & reliable modelStable, robust, consistent & reliable model
Monte Carlo-simulationMonte Carlo-simulation
Computation of regulatoryand economic capitalComputation of regulatoryand economic capital
STORM(Product Flow Mapping)
OREC(OR Economic Capital)
GO
LD(L
oss
Dat
abas
e)
KO
RIS
(Key
Ris
k In
dic
ators
)
ORMIS(OR Management Info. System)
TESSA
(Str
uct
ure
d Sel
f
Ass
essm
ent)
STORM(Product Flow Mapping)
OREC(OR Economic Capital)
GO
LD(L
oss
Dat
abas
e)
KO
RIS
(Key
Ris
k In
dic
ators
)
KO
RIS
(Key
Ris
k In
dic
ators
)
ORMIS(OR Management Info. System)
ORMIS(OR Management Info. System)
TESSA
(Str
uct
ure
d Sel
f
Ass
essm
ent)
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ORMIS - Key Functionality'sManagement Reporting
Access and compare assessments, losses, and indicators of operational risks in one goAccess and compare assessments, losses, and indicators of operational risks in one go
Adminster user for several modules only onceAdminster user for several modules only once
STORM(Product Flow Mapping)
OREC(OR Economic Capital)
GO
LD(L
oss
Dat
abas
e)
KO
RIS
(Key
Ris
k In
dic
ato
rs)
ORMIS(OR Management Info. System)
TESSA
(Str
uct
ure
d S
elf
Ass
essm
ent)
STORM(Product Flow Mapping)
OREC(OR Economic Capital)
GO
LD(L
oss
Dat
abas
e)
KO
RIS
(Key
Ris
k In
dic
ato
rs)
KO
RIS
(Key
Ris
k In
dic
ato
rs)
ORMIS(OR Management Info. System)
TESSA
(Str
uct
ure
d S
elf
Ass
essm
ent)
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Agenda
n Introduction to Capco
n Operational Risk - Market Trends & Challenges
n Capco‘s OR Framework and Approach
n Partners & Solution Overview - ORTOS
n Summary & Capco‘s Service and Solution offering
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Solution Overview - ORTOS Operational Risk Tool SuiteFurthermore, Capco has jointly developed a comprehensive and proven solution,which covers all aspects and functions for a successful implementation of theAdvanced Management Approach (AMA)
• Capco & ORTOS provide an encompassing solution, not only fulfilling the requirements set by Basel II, butalso enabling financial institutions to identify the source of loss and risk resulting from technology, people,process and external events
• The combined business and technology solution offers a structured approach to loss aggregation andevaluation, structured self assessment and risk identification, risk indicator management and economiccapital, RaRoC and EVA evaluation on the basis of the AMA (Advanced Management Approach)
• Capco provides experienced operational risk professionals with ORTOS product knowledge, able toimplement both the solution and realize the economic benefits of implementing an AMA.
Capco OR Implementation Approach
STORM
TESSA
OREC
GO
LD
KO
RIS
ORMIS
Modular System ORTOS
+ =Operational
Risk Solution,fulfilling
OperationalRisk BAR II
requirements
Identification Measurement Monitoring MitigationGovernance
Self Assessment
Capture of Losses
• Improve Processes
• Enhance Technology
• Business Continuity Planning
• Enhance Business Controls
• Project Quality Assurance
• Project Readiness Assessment
• Board Reporting
• Regulatory Reporting
• Quality Assurance
• Capital Allocation
• Consisten-cy across Group
• Independ-ent Review
• Audit Control Economic Capital
Key Risk Indicators
Process Mapping
Strategy & Design
Implementation Mitigation
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OR Health Check - By Region or Business Line
Assessment on overall Ops Risk environment
n Prioritized analysis of control gaps and weaknesses
nWhen, where and how to invest in the development of an operational risk function
Perform Level I Risk & Control Assessment Produce OR scorecard Complete Level II Risk &
Control Gap Analysis
Step 1 Step 2 Step 3 AssessmentReport
n Interview discussions with relevant employees to determine breadth and depth of detailed Level II analysis
nDetailed analysis of ‘as is’ Ops risk control environment by topic :
n Strategy and plann Organisational designn Business mappingn Technology & processn Culture & outsourcing
n Scorecard provides a comparative rating based on proprietary risk scoring methodology
n Scope of detailed Level II analysis
n Identification of immediate control gaps
n OR readiness scorecard for:n Overall Ops risk
environment
n Each topic arean Specific high risk items
n Level II Risk and Control matrix provides risk scoring of the process flows by comparing existing controls vs.expected controls
Act
ivit
ies
Del
iver
able
s
Ops risk HealthcheckOps risk Healthcheck
Operational risk scorecard
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r
r
S y s t e m sI n c o m e p r o c e s s i n g
S t o c k L e n d i n g … … … … … … … … … … … .
M a r g i n i n g / C o l l a t e r a l M a n a g e m e n t … … . .
F o r e i g n e x c h a n g e … … … … … … … … …C a s h m a n a g e m e n t
O r d e r E x e c u t i o n … … … … … … … … … … .E x t e r n a l M e s s a g i n g … … … … … … … … …
F e e s … … … … … … … … … … … … … … … . .
C r e d i t R i s k C o n t r o l … … … … … … … … … .
M a r k e t R i s k C o n t r o l … … … … … … … … …
Real time position keepingC o n f i r m a t i o n … … … … … … … … … … … … .
Market Reconci l iat ion…………………….
P r i c e / V a l u a t i o n S u p p o r t … … … … … … … . .Security/Deriv Settlement/Clearing……..
Po r t f o l i o r epo r t i ng
R e p o r t i n g / E n q u i r y … … … … … … … … … …R i s k m a n a g e m e n t … … … … … … . .
A c c o u n t i n g … … … … … … … … … … … … …
Fund administration
C o r p o r a t e a c t i o n s
x
a
m a p p i n g b u s i n e s s r e q u i r e m e n t s
with technology capab l i t i l y
T e c h n i c a l s u m m a r y :
aa
x
x
x
x
Tax monitoring
xa
a
aa
a
aa
a
a
a
a
a
a
S e r v i c e
Level P roce s s PeopleClientseg . 2Trad ing Sales
C l i e n t r e l a t i o n s h i p
A c c o u n t s e t u p
S t a t i c d a t a m a n a g e m e n t
T r a d e b o o k i n g / c o n f i r m sE x c e p t i o n p r o c e s s i n g
O p e r a t i o n s c o n t r o l
Fails management
I n v e n t o r y m a n a g e m e n t
Interest claims
C l e a r i n g & S e t t l e m e n t
R e c o n c i l i a t i o n
Serv
ices
Clients e g. 1
GAPS RELATED TO
r
r
r
r
r
r
r
r
r
rr
r
1 1
1 1 111111111
1111
11
1111
1
11
11
3 33 3 3 3
3 3
3 3 3Minor
Major
Where
N o G a p
r
13
5
555
5
r
r
S y s t e m sI n c o m e p r o c e s s i n g
S t o c k L e n d i n g … … … … … … … … … … … .
M a r g i n i n g / C o l l a t e r a l M a n a g e m e n t … … . .
F o r e i g n e x c h a n g e … … … … … … … … …C a s h m a n a g e m e n t
O r d e r E x e c u t i o n … … … … … … … … … … .E x t e r n a l M e s s a g i n g … … … … … … … … …
F e e s … … … … … … … … … … … … … … … . .
C r e d i t R i s k C o n t r o l … … … … … … … … … .
M a r k e t R i s k C o n t r o l … … … … … … … … …
Real time position keepingC o n f i r m a t i o n … … … … … … … … … … … … .
Market Reconci l iat ion…………………….
P r i c e / V a l u a t i o n S u p p o r t … … … … … … … . .Security/Deriv Settlement/Clearing……..
Po r t f o l i o r epo r t i ng
R e p o r t i n g / E n q u i r y … … … … … … … … … …R i s k m a n a g e m e n t … … … … … … . .
A c c o u n t i n g … … … … … … … … … … … … …
Fund administration
C o r p o r a t e a c t i o n s
x
a
m a p p i n g b u s i n e s s r e q u i r e m e n t s
with technology capab l i t i l y
T e c h n i c a l s u m m a r y :
aa
x
x
x
x
Tax monitoring
xa
a
aa
a
aa
a
a
a
a
a
a
S e r v i c e
Level P roce s s PeopleClientseg . 2Trad ing Sales
C l i e n t r e l a t i o n s h i p
A c c o u n t s e t u p
S t a t i c d a t a m a n a g e m e n t
T r a d e b o o k i n g / c o n f i r m sE x c e p t i o n p r o c e s s i n g
O p e r a t i o n s c o n t r o l
Fails management
I n v e n t o r y m a n a g e m e n t
Interest claims
C l e a r i n g & S e t t l e m e n t
R e c o n c i l i a t i o n
Serv
ices
Clients e g. 1
GAPS RELATED TO
r
r
r
r
r
r
r
r
r
rr
r
1 1
1 1 111111111
1111
11
1111
1
11
11
3 33 3 3 3
3 3
3 3 3Minor
Major
Where
N o G a p
r
13
5
555
5
r
r
S y s t e m sI n c o m e p r o c e s s i n g
S t o c k L e n d i n g … … … … … … … … … … … .
M a r g i n i n g / C o l l a t e r a l M a n a g e m e n t … … . .
F o r e i g n e x c h a n g e … … … … … … … … …C a s h m a n a g e m e n t
O r d e r E x e c u t i o n … … … … … … … … … … .E x t e r n a l M e s s a g i n g … … … … … … … … …
F e e s … … … … … … … … … … … … … … … . .
C r e d i t R i s k C o n t r o l … … … … … … … … … .
M a r k e t R i s k C o n t r o l … … … … … … … … …
Real time position keepingC o n f i r m a t i o n … … … … … … … … … … … … .
Market Reconci l iat ion…………………….
P r i c e / V a l u a t i o n S u p p o r t … … … … … … … . .Security/Deriv Settlement/Clearing……..
Po r t f o l i o r epo r t i ng
R e p o r t i n g / E n q u i r y … … … … … … … … … …R i s k m a n a g e m e n t … … … … … … . .
A c c o u n t i n g … … … … … … … … … … … … …
Fund administration
C o r p o r a t e a c t i o n s
x
a
m a p p i n g b u s i n e s s r e q u i r e m e n t s
with technology capab l i t i l y
T e c h n i c a l s u m m a r y :
aa
x
x
x
x
Tax monitoring
xa
a
aa
a
aa
a
a
a
a
a
a
Realisation Cycle
Vision/ Strategy
Phase II
Approximate time in Months
Wor
k st
ream
s
Realisation /ImplementationIdentification, Measurement and Monitoring
Operational Risk Mitigation
Phase IIIPhase I
2 12 N
Governance
Bank Structure
Loss Data
Self Assessment
KRI
Economic Capital
Reporting
4 6 8 10
Strategy & Design
MitigationManagement
• Products/ Processes
• Organization
• Location
Operational Risk Framework – Understandingthe regulatory requirements, client impact andstep-by-step solution approach
Evaluate present status and identify gaps -recommend opportunities and solutions
Based on building block approach anddependant on the clients appetite and needs
Operational RiskTraining
Operational RiskProject
Health Check
ProjectRealization and Implementation
Overview of Capco's Offering in Operational RiskDepending on the customers experience and needs, Capco offers different servicesaddressing all stages of the client's Operational Risk lifecycle – starting with understandingthe issues & impacts over developing a solution, through to realization & implementation ofthe chosen approach
Enables clients to understand theirorganisation readiness regarding the Basel IIregulatory requirements
Basel II Requirements
Check-up
Operational Risk Vision and
StrategyOperational Risk Design
Operational Risk Implemenation
Definiton Approach Organsiation Design
Regulatory Capital
Business Mapping
Cultural Assessment
Outsourcing Impact
Technology Infrastructure
Operational Process
5 4 2 4 1 2 2 2 2
3 2 2 2 1 2 1 1 1
2 1 2 1 2 2 1 1 1
1 1 1 1 1 1 1 1 1
1 1 1 1 1 1 1 1 1
1 1 1 1 1 1 1 1 1
1 1 1 1 1 1 1 1 1
1 1 1 1 1 1 1 1 1
1 1 1 1 1 1 1 1 1
1 1 1 1 1 1 1 1 1
1. The board is aware of major aspects of operational risk and strategies
2. Senior Management is responsible for implementing Operational Risk
3. Information roles play a key role in an Operatinal Risk Framework
4. Identify Operational Risk in Products, Activities, Processes and Systems
6. Information roles play a key role in an Operatinal Risk Framework
5. Establish a Process for measuring Operational Risk
7. Define Policies, Processes and Procedures to control and mitigate Operational Risk
8. Require Banks to have an effective System to identify, monitor and control OpRisk
9. Regular independent evaluation of bank Strategies, Policies, Procedures and Practices
10. Make sufficient public Disclosure of Operational Risk Exposure and Quality
Principles 1 - 5 Principles 6 - 8 Principles 9-10 Principles 11- 12 Principles 13-18 Principles 19-21 Principles 22- 23 Principles 24- 27 Principles 28- 30Developing an appropriate Risk Management Environment
BIS Sound Practicesfor the Management &Supervision of OpRisk
Risk Management Identification, Measurment, Monitoring and Control
Role of Supervisors and Disclosure
Regulatory & Mgmt.Reporting
Underlying Structure of OR ApproachOrganization/Location/Products/Processesand Projects
OPERATIONAL RISK FRAMEWORK
PROJECT APPROACH & REALIZATION
BUSIN
ESS
AND
TECH
NICAL
MET
HODIC
AL A
PPRO
ACH
Evaluation of Unexpected Operational Risk(Calculation of Economic Capital)
Benchmark & Back test
(Loss Data Base)
Self Assessment(Questionnaire)
Monitoring and Management
(KRI)
Regulatory & Mgmt.Reporting
Underlying Structure of OR ApproachOrganization/Location/Products/Processesand Projects
OPERATIONAL RISK FRAMEWORK
PROJECT APPROACH & REALIZATION
BUSIN
ESS
AND
TECH
NICAL
MET
HODIC
AL A
PPRO
ACH
Evaluation of Unexpected Operational Risk(Calculation of Economic Capital)
Benchmark & Back test
(Loss Data Base)
Self Assessment(Questionnaire)
Monitoring and Management
(KRI)
29 - Operational Risk Presentation_Oracle_Appsworld - June 2003
SummaryCapco has developed a unique value proposition to fulfil the Basel II operationalrisk requirements - and more
n End-to-End corporate wide solution for the fulfilment of the Basel IIoperational risk requirements
n Building block approach, delivered by experienced industrypractitioners with clear deliverables and benefits for each stage
n Unique culmination of self-assessment, KRI and loss data approachalong process and project profiles, creating:
n Optimal risk transparency within operations, locations and business lines
n Enabling qualified investment decisions to mitigate risk - Scorecardreporting
n Unique culmination of a specific solution and approach aligned toaddress and resolve the complete operational risk mandate
n Capco offers a row of business and IT solutions, which enable financialinstitutions to better mitigate their operational risk
30 - Operational Risk Presentation_Oracle_Appsworld - June 2003
Contact
Maurizio BradlawPrincipal Consultant
T +49 69 97 60 91 62F +49 69 97 60 90 01Mobile +49 172 879 34 [email protected]
CapcoMesseturmFriedrich-Ebert-Anlage 4960308 Frankfurt am MainGermanyT +49 69 97 60 90 00F +49 69 97 60 90 01www.capco.com
Danny ShamhongManaging Principal
T +44 207 367 1092F +44 207 367 1001Mobile +44 7880 740 [email protected]
Capco14-18 Gresham StreetClements HouseLondonGT LONEC2V7JET +44 20 7367 1000F +44 20 7367 1001www.capco.com
31 - Operational Risk Presentation_Oracle_Appsworld - June 2003
„Bungee jumpers, sky divers and Indy 500 drivers arein the business of taking risk. Bankers are in thebusiness of managing risk .“
John D Hawke Jr, Controller of the Currency, USA, 5 May 1999
Thank you!
Operational Risk Management is a business challenge !Not solely a compliance issue
32 - Operational Risk Presentation_Oracle_Appsworld - June 2003