PRMIA/ISDAOperational Risk in E Trading

London

Wednesday 10th April 2002G D Woods

Managing Director

+44 207 678 3633

David.Woods@abnamro.com

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E Risks

Aren’t really new Market & Credit Risk work differently in an e-environment Operational Risk more discussed

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Seven Types of Risk Inside the Organisation

- People- Processes- Technology- Strategy

Outside the Organisation- Business Environment- Legal Systems- Bad Guys

(Attribution - Dr Nigel Upton, LBS)

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Risks that Change

FX Risk IR Risk Liquidity Risk Reputation Risk Customer Acquisition Risk Speed

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A Checklist of e-Business Risk IssuesRisk Source Check Risk Issues

Bad Guys - fraud- graffiti- denial of service- virus attack- cyber-squatting

Commercial Environment - customer behaviour- supplier performance- exchange rate environments

Legal System - e-business legislation- standard commercial law- laws in overseas markets

People - attitudes to data security- defamatory e-mails- advertising on the web

Processes - intellectual property- delivery of products/services

Technology - website downtime- mission –critical systems- secuirty

Business Strategy - viability- acceptability- sustainability

(Attribution - Dr Nigel Upton, LBS)

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What we’re trying to achieve

Lower error rates Lower costs Acceptable Risk/return

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And the Potholes...

Mistakes are more costly Higher 3rd party risks Risk clustering Resource availability Product scalability

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Management

Must understand Risks & effect on Business process Decide on Risks Accept Risks Instil culture of Risk awareness