Measuring and Managing Operational Risk

Day One

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00 Introduction to Operational Risk

• What is “Operational Risk“?
• Basel Definition of Operational Risk
• Regulatory Treatment of Operational Risk

Closer Look at Operational Risk Events

• Overview of Types of Operational Risk
• Internal Fraud
• External Fraud
• Employment Practices and Workplace Safety
• Clients, Products and Business Practices
  • Legal risk
  • The impact of MiFID
• Damage to Physical Assets
• Business Disruption and System Failures
• Execution, Delivery and Process Management
  • Settlement risk
• Landmark Operational Risk Cases
  • Barings, BCCI, World Trade Center, Allied Irish,...

12.00 - 13.00 Lunch

13.00 - 16.30 Quantifying Operational Risk

• Overview of Approaches to Measuring Operational Risk
  • Bottom-up and top-down methods
  • Risk profiling
  • Value chain analysis
  • Scorecard approaches
  • Principal-agent analysis
• Basic Indicator Approach (Basel)
  • Exposure indicator (EI)
  • The “alpha” factor
  • Example of calculating capital charge
• The Standardized Approach (Basel)
  • Minimum standards for using the standardized approach
  • Business lines and business line mapping
  • The “beta” factors
  • Example of calculating capital charge
• Case: Using Basic Indicator/Standardized Approach in “Small Bank”
• Small Exercises

Day Two

09.00 - 09.15 Brief recap

09.15 - 12.00 Quantifying Operational Risk (2)

• Advanced Measurement Approach (Basel)
  • Characteristics and components of AMA
  • Minimum requirements for using AMA
  • Challenges and benefits of the AMA
• Quantifying Risk Using the AMA
  • Operational loss data
    • Internal/external
  • Quantification methodologies
    • Loss Distribution Approach (LDA)
    • Value-at-Risk
  • Qualitative risk assessment and key risk indicators
    • Scorecards and early warning systems
• Required Disclosures after the AMA
• Summary: Comparing the Possible Impacts of Different Measurement Approaches (QIS)

Practical Implementations

• Practical Advices (how to build an Operational Risk database, etc.)
• Pitfalls and Possible Solutions
• Implementation of an Operational Risk Framework at “BigBank”
• Using AMA in “BigBank”

12.00 - 13.00 Lunch

13.00 - 16.30 Managing Operational Risk

• Sound Practices for Managing Operational Risk (Basel)
  • Developing an appropriate risk management environment
  • Identification, assessment, monitoring and Control/mitigation
  • The role of supervisors
  • The role of disclosure
• Risk Mitigation Techniques
  • Insurance
  • OP derivatives and “Act-of-God” instruments
  • Settlement systems
• Managing Operational Risk under Pillar 2 in the Basel II Framework

Integrated Risk Management

• The COSO Integrated Framework for Managing Risk
• Building Consistent Operational Risk Management Systems
• Developing an Enterprise-Wide “Risk Culture”
• Integrating Basel II and MiFID Compliance

Summary, Evaluation and Termination of the Seminar