Euromoney Audit Training

Course Objectives

'Operational Risk Management' addresses the fundamental causes of operational risk and provides the delegate with a simple, systematic control and management programme to achieve control.

Summary of course content

• A systematic approach to the control of all operational risks within an ERM culture
• A pre-emptive control strategy providing the ability to identify, monitor and control both visible and hidden areas of exposure
• The skills to analyse and manage operational risk using best practice techniques, in line with Basel II requirements
• The ability to detect and control the potential for fraud and manipulation
• An understanding of the new role of today's C.R.O. and other risk departments
• The experience to develop a properly focused management information structure to promote risk awareness and facilitate control

Methodology

This course demonstrates how the correct mix of philosophical and operational elements combine together to ensure success. It provides a simple structure for control and automatic mechanisms for detection and resolution of problems, using an evolutionary approach your new knowledge.

A series of real life case studies illustrate where problems originate and how they can be solved in a
simple systematic way. The course is highly interactive and is delivered by a mature practioner with many
years of successful experience of risk control, in a wide range of activities.

Who should attend

• Senior and middle management who are concerned about risk
• Operations managers
• Middle office and risk managers
• Financial and product control staff
• Treasury managers
• Auditors and internal control officers
• IT and EDP operatives
• Regulators
• Compliance staff
• Accountants and consultants

Supporting publications

 

DAY ONE

Defining operational risk

• Definition of the elements of operational risk
• Introduction to the value of a quality environment and the need for a sound and responsible management philosophy

The role of quality in controlling and reducing risk

• Achieving first time quality
• The management of quality
• The use of optimum control points
• Key risk controls
• Cause and effect analysis
• Generic cause factors

Case study: problem origination and escalation
This case study will show how big problems and risks can originate from relatively insignificant cause
elements and how these problems can be prevented at source.

Case study: "The Fall of Barings Bank"
Group discussion concentrating on internal and external failures and their relevance to today's highly complex and changing environment.

The role of responsibility management

• Its use in controlling risk
• How to implement
• Empowerment
• Allocation and acceptance of responsibility
• The dangers of short term strategies

DAY TWO

The BIS/Basel Accord as it relates to operational risk

• Key points in the Basel II Capital Accord
• Discussion on the implications for risk managers
• Main objectives and implementation plan

Implementing an operational risk management function within an ¡§enterprise risk management" structure

Organisation and reporting lines

• Establish best practice reporting structure which includes:
• The board
• CEO / COO / CRO
• Line managers, risk managers, audit and compliance

Analytical applications

• Detecting, analysing and controlling risk elements

Build an operational risk scoring process

• Review of the major types of operational risks
• Measurement framework
• Scoring approaches
• Key performance and key risk indicators
• Critical success factors

Example of an operational risk model

• Identification and prioritisation of key risk factors
• Prioritizing of operational risk drivers
• Establishing a risk hierarchy
• Event magnitude and frequency measurements

Group discussion on the benefits / pitfalls of risk models and measurement systems.

DAY THREE

Controlling costs and losses

• Visible and invisible risks and losses
• Cash management
• Non earning assets
• Error, fines and losses
• Margin controls
• Cost reductions

The use of limits as a control mechanism

• Guidance limits and mandatory limits
• Positions
• Volumes
• Credit / settlement
• Outstandings

Case studies: the use of stop loss limits

The role of management information in controlling risk

• Highlighting risk areas and non-compliance
• Documenting and authorisation of exceptions and excesses
• Reports design and structure
• Getting focussed

Case study: LTCM hedge fund
Group discussion on its relevance to today's financial and operational risks

The systematic control process workshop

• An analysis of the control process from initiation through to settlement and reconciliation with detailed examination of:
• Pre-dealing controls
• Dealing controls
• Middle office functionality
• Processing controls
• Payment
• Position
• Reconciliation
• Accounting
• Documentation
• Reporting
• Compliance

This section takes the delegate on a step-by-step journey through each stage of the process with real life case studies and examples of problems, risks controls and solutions. It will provide a generic and systematic control process to limit and control risk at every stage.

Case studies and real life examples including back office frauds.

DAY FOUR

Case study: Allied Irish Bank (ALLFIRST)

This case study will clearly highlight how a lack of proper controls, knowledge and infrastructure can have devastating consequences. It will show how this could have been identified and easily prevented.

New products steering committee

Disaster recovery

Systems security

Sensitivity testing / stress testing

Hedging to reduce risk

• Hedge products
• The process of hedging

Case study: how to hedge using derivative products

The role of the middle office in controlling and mitigating risk

• Middle office functionality explained
• The middle office as the catalyst for control
• The training and development role
• The co-ordinator

Portfolio controls

• The use of portfolio controls to control risk
• Trading - Investment - Arbitrage - Hedging
• Managed Asset Portfolios (MAPS)
• Discretionary funds

Case study: "The Biggest Fraud Case in Banking History" – Societe Generale Paris

Despite Millions of US$ spent on highly developed IT and risk management systems, one person went
undetected for years building up positions of $50 billion and losses of US$10 billion! Societe Generale is
just another failure in a very long line of banking failures/crisis in which the only real difference is the
size of the actual loss.

This session will clearly demonstrate how the middle office, back office and other departments with responsibilities for risk could have easily prevented this fraud.

Summary

• Kevin Merry

  Kevin is a leading international trainer and consultant with over 27 years extensive experience with major “blue chip” financial institutions including JP Morgan, CIBC, Mizhuo and other leading global banks. Kevin now specialises in training and focuses on five main areas: "Operational Risk Management & Measurement", "Back Office Management", "Effective Middle Office", “Auditing” and "Understanding Financial Products". 

Interested in holding this course in-house? Please fill out your details and a member of our team will be in touch with more information.

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