The global financial crisis underscores the significant improvements required of firms’ risk management capabilities and structures. While credit and market risk have been the focus of public attention, operational risk management programs have received the attention of business leaders. Attention to operational risk stems from the multi-billion loss operational risk events that took place in international banks over the recent past and which constitute a reputational threat.
Strong operational risk management programs and management information systems can identify inherent business risks proactively and protect business reputation. Loss of data, employee-related litigation, poor client expectation management and transaction miss-execution also draw negative attention and can be addressed proactively to a large extend.
Operational risk management, because of its breadth of subject matter and complexity of interrelationships across subjects, poses a significant challenge. It is difficult to anticipate and manage risks, including potential failures in people, processes or technology; internal control failures; and fraud or unethical behavior. It is also difficult to balance having sufficient capital buffers to absorb the financial impact of adverse events without tying up capital unnecessarily.
Our firm is well-positioned to work with clients in this complex, multifaceted area. Our international long experience and expertise in operational risk management and capital measurement means we bring together hands-on industry experience with regulatory expertise. We offer our clients lessons learned from our past experiences and our knowledge of current market best practices.
Our professionals advised numerous clients across the full spectrum of operational risk management and measurement issues, including:
- Evaluating, designing and implementing effective integrated operational risk management programs, including Risk Control Self Assessments (RCSAs), operational risk incident data recording and management programs, scenario generation and analysis, internal control evaluation, operational key risk indicator monitoring and action planning programs
- Evaluating operational risk management frameworks, including risk definitions, risk appetite, policies and procedures, loss event capture, and reporting
- Advising on and developping operational risk measurement (LDA-Loss Distribution Approach) models, stress testing methodologies, and other components of capital calculation, including Operational VaR (Value at Risk) models
- Helping clients qualify for the Advanced Measurement Approach (AMA) and save on capital requirements
- Linking RCSA output to an AMA model input
- Linking the output of an op risk management framework to action planning and business decision making
- Rationalise insurance programs so that can be used as operational risk mitigants in the calculation of capital requirements
- Assessing operational risks in new products, and providing innovative solutions on improving clients’ identification of and preparedness for emerging risks
- Factoring operational risk into product pricing and risk-adjusted performance measures
- Aggregating op risks across business lines and risk categories