Description

Why Attend

The course will develop an understanding of the importance of operational risk management within the Banking and Finance industry and build an appreciation for the impact operational risk can have. The focus is on the practical implication of operational risk, rather than just the theory. To this end real-world examples and case studies are used throughout.  The aim is that participants not only leave with a better understanding of operational risk, but also how better to manage it.

Key Learning Outcomes:

• Identify the sources of operational risk and how these arise within the context of financial institutions’ main business activities
• Understand the governance structures, systems, procedures, and cultural aspects necessary for an organization to successfully manage operational risk
• Build a knowledge of the main techniques for the measurement and quantification of operational risk and their relative merits and drawbacks, including the importance of strong controls and Key Risk Indicators
• Appreciate the likely impact on the operational risk environment that Basel IV may have.

Who Should Attend?

This course is aimed at individuals whose roles involve operational risk management, or anyone with an interest in operational risk and would like to gain a better understanding of the real-world implications and how to better deal with them.

Course Contents:

Day One and Two

• Analytic Overview
• The aim of this section is to understand the nature of operational risk, identify typical occurrences of operational risk within a bank’s business model, and to consider external perspectives on the importance of operational risk management in rating and banking supervision.
  • Importance of operational risk as part of the firm’s risk inventory
  • Current industry drivers of increasing operational risk in financial institutions; complexity, innovation, technology, transaction velocity and litigation
  • Motivations to manage operational risk: Financial loss, legal and regulatory requirements, reputational risks, capital management and planning
  • Management perspectives/requirements; understanding the risk, information systems, quantification, mitigation and hedging decisions, cultural and behavioural aspects
  • Identifying categories of operational risk in financial institutions
  • External perspectives on operational risks:
• Incorporation of operational risk criteria in rating agency methodologies
• Regulatory and industry perspectives on the importance of operational risk control
• Operational Risk: Dimes and Disasters!
• The big operational risk loses are the ones that make the news, but is that the whole picture? This section explores the wider impact of operational risk within financial institutions:
  • High Frequency – Low Impact
  • Low Frequency – High Impact
  • Who is at risk and at risk of what?
  • Operational risk by institutional type
• Operational Risk Governance
• The objective of risk management is to add maximum sustainable value to the activities of an organization. Therefore, it needs to be a continuous and developing process that operates in conjunction with the development and implementation of the organization’s strategy, and whose aim is to increase the probability of achieving the overall objectives of the organization and reduce the probability of failure.
• To achieve this, operational risk management must be integrated into the organization and led by the most senior management. This section of the course will therefore look at the key role of the board in setting an organization’s operational risk policy and the key characteristics of how it is implemented.
  • Risk management process – operational risk as an integral part of the enterprise risk management framework
  • Roles and responsibilities of the board, senior management, and support functions
  • Defining risk appetite for operational risk. What is it and how can it be expressed?
  • Evaluating corporate governance standards
  • Three lines of defence – an explanation of the traditional three lines of defence and the allocation of risk responsibilities
  • Operational risk framework – how the components of operational risk management fit within strategy and risk policy
  • Operational risk cycle – the components of the risk cycle: Identification; assessment and measurement; mitigation and management; monitoring and reporting
  • The role of culture in the organization-wide management of operational risk:
• Why culture forms such an important aspect of operational risk management
• Characteristics of poor vs. effective operational risk cultures
• Fostering an effective risk management culture
• Day Three and Four
• Management of Operational Risk
• The objective of this section is to consider the Operational Risk Management framework.  The core elements of the framework are covered as well as who is responsible for what within the framework.
  • Operational risk policy – the key components of an organization’s operational risk policy
  • Identification: The methods and problems of identifying operational risks
• Risk Control and Self-Assessment (RCSA) techniques – advantages and disadvantages
• Cultural aspects to the RCSA
• Defining frequency and impact scales
  • Assessment: The methods and problems of assessing operational risks
  • Mitigation of risk impact and likelihood of occurrence: The methods of mitigating operational risks
• Understanding controls and how risk is modified
•     Preventive
•     Internal Detective
•     External Detective
  • Monitoring
• The methods of monitoring operational risks.
  • Operational risk incident recording:
• Objectives of risk incident recording
• Internal data collection, parsing and emerging risks identification
• The importance of ‘Lessons Learned’ processes
• Impact of new products, processes, business lines and locations
  • Improving the organization’s operational risk process:
• Strategies to align operational risk to risk appetite: The classic risk matrix
• Measuring progress and improvement
• Key Risk Indicator (KRI)
• Key Risk Indicators are a key tool of Operational Risk management.  This section aims to identify what makes a good KRI and how they can be used more effectively.
  • Types of KRI and relationship to risk levels
  • Characteristics of and identifying useful KRI’s
• The Cause, Consequence and Impact of Operational Risk
• In this section using a simply Root-Cause-Analysis the causes of operational risk are investigated to identify:
  • The cause (Event)
• Physical / Human / Organisation Causes
  • The consequence (Cause)
  • The impact (Effect).
  • The brain mechanisms that can hold us back!
• Talab: Causes of Black Swans
• Basel IV Operational Risk
• With the soon to be introduction of the new Basel IV Capital Requirements financial institutions globally are going to be impacted.  This impact extends to how institutions will need to view, record, and apply operational risk metrics. This section provides a high-level overview of the changes and why they will impact everyone.
  • Fundamental nature of bank regulatory capital requirements
  • The historic challenges of calculating unexpected versus expected loss for operational risk
  • Basel IV proposed changes
  • The standardised Measure Approach