Operational Risk Nov 2010

8/8/2019 Operational Risk Nov 2010

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Risk

The new driver to m odernise backoffice efficiencies and exposurereduction!

Prepared by:

Stuart A McKinlayISITC Europe Annual

Conference

11 November 2010


3/11

Staying out of regulatory jail

Fundamental restructuring of the industry

Competition will heighten:- capital- clients- resources- sustainable returns

Firms will need to identify solutions

Firms will need to cope with a significant cultural shift Increased transparency is emerging measurement

and control

ISITC Europe Annual

Conference

11 November 2010


4/11

Staying out of regulatory jailWhat can you do?

Consensus that current business model is too complex

Centralisation of critical functions versus the ability totake advantage of market events and opportunities

Successful firms will take advantage of standards andSaaS architectures that enable - interoperability,

flexibility and lower cost delivery of business processes

Tomorrows business leaders will no longer simply focus

on staying out of regulatory jail successful firms willlearn to leverage regulatory investments to driverevenue

ISITC Europe Annual

Conference

11 November 2010


5/11

Poor processes and

Operational Risk Post trade processes are still in the dark ages while pre

trade processes have moved on.

Volume to be processed by supporting back office

engines are now overwhelming.

Cornerstones of financial services operations failed or

were shown to be highly suspect under systemic

pressure.

Markets must embrace step changes to improve post

trade transparency and safety of operation

ISITC Europe Annual

Conference

11 November 2010


6/11

Poor processes and

Operational Risk

Front Office, low latency and trade execution advantage this has been the focus

Real risks exist post trade and are of colossalproportions

September 2008 is still fresh in minds today

Despite a few brave attempts processes remain largelyunaltered

Absence of failure had presented a false dawn

Failure has exposed the issue - and the scene is notpretty

ISITC Europe Annual

Conference

11 November 2010


7/11

Poor processes and

Operational Risk Silo operations

Efficient trading strategies to monitor, arbitrage

opportunities, hedging options to monitor and control

real time market risk abound Post execution trades are largely processed in asset

class silos lack of awareness

Perpetuates beyond asset class into the settlement

process itself

Work-arounds and sealed Pandoras Box abound

ISITC Europe Annual

Conference

11 November 2010


8/11

Poor processes and

Operational Risk Industry has largely failed to address the issue of

uniform processes across asset classes

A failure to track and recover entitlements on failed

trades is endemic across the industry Historically camouflaged by profits

False assumption in infallibility of market model

Multiple pressure now exist to change this view

If the market does not fix itself, then surely the regulator

will which is altogether less pleasant

ISITC Europe Annual

Conference

11 November 2010


9/11

Operational Risk and Standardisation

Spectacular collapse at certain Financial firms

Risk and Operational Risk is high on everyones agenda

But is it??????????????

Essential to monitor exposure to trading counterparties

across ALLbusiness silos Relationships that exist between linked transaction is

crucial

Ability to dashboard the overall impact on a firmsliquidity fro diverse operations

At the end of the day it is about data trade data and howit is managed

ISITC Europe Annual

Conference

11 November 2010


10/11

Operational Risk and Standardisation Market has largely failed to achieve standardisation,

efficiency and transparency to an acceptable level!

Issues are still being shrouded by use of complex

vocabulary and defence of established sacred

processes

Commercial interests still get in the way

Investor expectations will rule!

Investor confidence expects transparency of costs,process and information not an unrealistic request

ISITC Europe Annual

Conference

11 November 2010


11/11

A final

thought provoking statement

During the past 10 years, the Front Office and its quest

for market share and profits has drawn all investment

and innovation focus, leaving the search for efficiency

gains in the post trade world distant cousins.

This may not have mattered before the bubble burst, but

as the market sentiment and regulatory concern nowtakes us increasingly back to basics regularly

punctuated by risk - it should now!

ISITC Europe Annual

Conference

11 November 2010

Operational Risk Nov 2010

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