Operational Risk Measurement and Management

Introduction

The aim of this seminar is to introduce participants to operational risk, its major features, measurement and management under the Basel II Accord.

Key features include:

• explanation of operational risk and how its importance has changed with the introduction of new risk-based regulation
• identification of the ten key types of operational risk and best practice techniques for their management
• explanation of the Basel II measurement, supervisory and disclosure requirements and the approaches banks are using to ensure compliance
• detailed review of the simple and advanced methods for calculating operational risk capital

Objectives

At the end of this seminar participants will have a basic understanding of:

• the Basel II Accord and its operational risk requirements
• operational risk and key terminology
• the main types of operational risk
• the different approaches to measuring operational risk
• techniques and frameworks for managing operational risk
• the reasons and techniques for mitigating, monitoring of operational risk
• supervision and disclosure

This seminar is intended those either new to risk management, operational risk management, or who wish to gain an understanding of risk-based regulation and how they are applied to operational risk. It will be of use to:

• risk managers and analysts who are new to operational risk or international regulations
• operational risk managers are new to operational risk or international risk-based regulations
• internal and external auditors
• it and operations professionals
• regulators and supervisory professionals
• suppliers and consultants to banks and the risk management industry
• business managers and team leaders who have responsibility for ensuring the business function complies with their organisations operational risk policies
• individuals who are responsible for operational risk monitoring or reporting.

Pre-requisites

No prior experience of risk-based management, of the Basel II Accord, or of operational risk is required as this seminar first covers the basics before moving on to more advanced topics. However it is assumed that all delegates are familiar with common financial terms and have a basic understanding of banking and the functions of a financial institution. 

Content

Day 1 – Understanding operational risk and operational risk management

Defining operational risk

• The Basel II Accord
• What is operational risk?
• What is excluded from the Basel definition – other risks
  • Reputational risk
  • Business risk
  • Strategic risk
• Key terms
• Types of losses
• Why has operational risk been included in the Accord
• Trends in operational risk
• Case Study

Types of operational risk

• Internal Fraud.
• External Fraud.
• Employment Practices & Workplace Safety.
• Clients, Products & Business Practices.
• Damage to Physical Assets.
• Business Disruption & System Failures.
• Execution, Delivery & Process Management.
• Case study

Operational risk management 

• Operational risk frameworks
• Implementing an operational risk framework
• Sound practices for the management and supervision of operational risk
• The role of management in operational risk
• Operational risk management activities
  • Identification
  • Assessment
  • Measurement
  • Mitigation and control
  • Monitoring and reporting
• Example/case study

Day 2 – Mitigation and monitoring of risk calculating operational risk capital

Mitigation, monitoring and reporting      

• What is operational risk mitigation?
• Mitigation techniques
  • People
  • Technology
  • Processes
• Business continuity planning
• Monitoring operational risk
• Event Management
• Event reporting and monitoring
• Reporting process
• Example/case study

Operational risk measurement under Basel II      

• What is operational risk measurement
• Management versus mitigation versus measurement
• Risk appetite
• Risk logs/registers
• The risk exposure indicator
• Expected and unexpected losses
• Basel II measurement approaches
• Basic criteria for using the measurement approaches

The simple Basel II methods for measuring operational risk

• Basic Indicator Approach
• Examples
• The Standardised Approach
• The Business lines
• Examples

Day 3 – The advanced approach to measuring operational risk, supervision and disclosure

The advanced approach for measuring operational risk   

• The Advanced Measurement Approach
• Loss distribution approach
• Other methods
• Basel requirements for using the advanced approaches
• Measuring expected losses
• Extreme events
• Scenario testing
• Use of insurance

Data  and the Advanced Measurement Approach

• Data requirements
• Internal data
• External data
• Data issues
• Examples

Basel II compliance using standards from other industries

• Basel II limitations and why banks adopt standards and frameworks from other industries to ensure compliance
• Some commonly adopted standards

Operational risk under pillars 2 and 3    

• What is supervision and disclosure
• Home/host supervisory co-operation
• Operational risk under Pillar 2
• Supervision of operational risk and other risks
• Pillar 3 and the external reporting requirements for operational risk