Risk Monitoring

This phase is the establishment of a monitoring and control of the risk profile of the company. It starts with the determination of the tolerable level of risk for the company. This tolerance is defined not only in terms of maximum risk but also in terms of risk atypical. Of course, the threshold defined by the company must be a regular challenge to ensure its relevance to the evolution of endogenous factors (trade policy, training ...) and exogenous (regulation, competition ...).

The monitoring device as defined by the company and driven by the risk management objectives are to:

* Increase the visibility of the risks;
* Better organize and improve processes;
* Preserve the results or business performance;
* Optimize the load management;
* Assign more effectively equity.

To achieve these objectives, the company has a network of "corresponding risk" in charge of a "portfolio risk" associated with the activities. This will be for this team:

* Implement the actions for the detection of risk (term limits ...)
* To analyze the causal factors of risk events (no audit clauses in contracts ...)
* Ensure the implementation of corrective actions and the definition of operational contingency plans (follow the recommendations ...).

To complement this, it is necessary to define indicators for the management of major risks that may be presented to all levels of the company (management, legislative and executive).

These sets of provisions are the minimum needed to ensure accountability, awareness and training of stakeholders on issues of risk.

The Operational Risk Management

Despite the strengthening of regulations on risk management in recent years, the banking sector could not avoid. Subprime crisis, which by contagion has affected the rest of the economy, has highlighted the fragility of the various devices to control risks in force in the financial institutions, rating agencies and supervisors of financial markets. This weakness was also reflected in internal fraud which cost Society General 4.9 billion Euros.

It follows from these two major events the observation that the advent and implementation of new regulations do not allow companies to be fully exempt from risk factors to the origin of these losses. Indeed, recent actions by U.S. authorities to strengthen the financial sector by extending the powers of the Federal Reserve Bank and the European ideas and initiatives can only be effective if the various players take full ownership of their system risk management.

Appropriating the device operational risk management is putting in place a structured approach marked by a number of essential steps which include:

This is to define a framework that sets out the principles and rules of the potential risks have been shown to affect the company (benchmarks, risk governance committee ...). Indeed, the different activities and policies initiated by the company to expose operational risks can generate losses. These risks can be understood only with the establishment of a true corporate culture. The policy of operational risk management is the first step of this investment after the definition of its risk profile. It must be in perfect harmony with the various regulations, including Basel II, which involves the establishment of a regulatory monitoring for a regular update of this policy.

Finally the definition of a policy of operational risk management must be built in the same priority as commercial actions to prevent deterioration in the performance of the company.

The Industry Compliance and Risk Management in Banking Part. III

Small companies portfolio management, often without record keeping function or UCITS depositary, are less likely than large private banks in the image of SG Private Banking and BNP Paribas Private Banking in France. The second, also known as reputation risk, is the potential risk of impairment of the company following the completion of an operational risk and is currently a major concern of private banks. Indeed, rather than retail banking, private banking built its success on its relationship with its customers and their perception of the bank whose image can be up to 80% of the value.

However, as evidenced by the reputational risk, difficult to materialize, quantify the value added of industry compliance is complex. As new operational risks ahead, the error would be to relegate to second place on the grounds that the instances of existing controls (risk, legal, internal control) are enough to support them. Most private banks have assimilated with seven out of ten organizations consider that the function is used to reduce or eliminate the costs of non-compliance [2]. The integration at the heart of the relationship with third party may even allow them to be a strategic advantage. On the one hand, customers are demanding their private bank integrity and accountability increased, the values defended by the industry compliance. Moreover, by making visible the intervention of the department compliance, managers can strengthen their relationship of trust with the customer and demonstrate that it has confidence of stakeholders in case of dispute. Of course, this procedure will remain balanced in order not to go against the productivity of managers.

Who says balanced does not mean limited. On the contrary, it is perfectly conceivable that in the future, the scope of intervention of the function widens, in private banking as in other areas of banking (investment banking, retail banking, and asset management). This could exceed the regulatory and ethics to include ethical and social values, thus meeting the new requirements of customers and shareholders, among others...

The Industry Compliance and Risk Management in Banking Part. II

By its nature, the private banking business is subject to strong ethical obligations in a restrictive regulatory environment. Private Banks were able to adapt their organizations accordingly by developing a "sector compliance" deployed across their different levels and geographic features. Compliance is also declines in their information system. The tools available to the front office are now configured so as to detect transactions revealed a risk of non-compliance. Still, the legislation varies from one country to another, even within Europe, and in fact complicates the adaptation of the SI in a pooling system.

In this way, private banks have managed to build a culture committed to compliance throughout their organization, regardless of the level of responsibility and activity of its players, with supporting concrete ways (eg dissemination of "best practices "developed in-house or in collaboration with other banks to better support the fight against money laundering, etc.). in addition to the rules dictated by the ethics implicit in the strict sense. Daily collaboration between asset managers and compliance officers or the training focused on the regulation is widely involved in the dissemination of such a culture. All this should help avoid service failures often related to communication problems on compliance.



Thus, the various stakeholders of a private bank involved in the efficiency of the public and particularly to locking the risks of business and reputation. The first stems from the use of instruments with increasingly complex and specific risks (hedge funds, credit derivatives, etc.)..

The importance counterparty risk Part-3

Identify the characteristics of the third party repository brings out the different types of people (customers, prospects, guarantees ...), information (customer classification, signs of third party monitoring bodies ...), for which the required quality levels are not necessarily the same. Two examples: the rate of duplication, including the reduction can improve the consolidation process and risk capital allocation, the rate of third parties not identified as an affiliate of the bank, resulting in poor consolidation risk on intra banking group.

As part of the approval process with Basel 2 instances of trust, quality indicators should focus mainly on:

    * The validity of the SI risk management
    * The performance score of grant, the organization of the rating systems and delegation
    * Compliance with the risk strategy in terms of authorization and action limits

These include examples of indicators as the rate of customer doubtful with a healthy note, the rate of third unrated or with a note too old, or the rate of others rated their group.

To control effectively the quality of each indicator, it is essential to have previously defined a responsible business and responsible SI (the MOA) on each of the data information system. The process of defining indicators is iterative, since the priorities may change based on improvements. To control them properly, it is preferable to retain only 10 in the first place. The dashboard can be enriched progressively as the process will be better understood by employees and more mature. For an effective control, must not exceed twenty indicators, which requires the definition of arbitration process indicators to be adopted.

Once the dashboard as defined with the various indicators chosen, it must be operated and monitored on a recurring basis. Identified as significant variables of a state, the indicators need to restore an image quality of the management of risks by focusing on the area’s most sensitive to the context and business goals. As a minimum, an annual review to define the quality policy to hold, but the quality is a daily challenge; do not forget to make some adjustments over the water...

The importance counterparty risk Part-2

In the long run, it is best to think of more sustainable solutions and, in this regard, the levers are very diverse appointment of quality managers in the contributing entities, workflow validation of customer data, standardization of concepts, comparisons with external sources, management of several criteria of uniqueness. The possible solutions are many but their cost, period of implementation and impact on data quality is variable. However, the prioritization of these actions is often subjective: some effects more "visible" are given priority while others are ignored because their quality impacts are unknown.

The success of the business plan requires a continuous improvement in performance. It should be laid down in processes that involve the third party repository, a real cornerstone of the IF bank. Based on the quality approaches used in industry, the virtuous cycle is divided into five phases: definition of indicators and quality objectives of the standard, indicators measuring, analyzing results, identifying actions to improve the quality control of the effect of implemented solutions. We propose in this article, to limit ourselves to the first two phases that we consider most important.
The definition of indicators based on the combination of an empirical, research-based elements of non-quality in the device in place, and a theoretical approach, having as a starting point to identify key parameters management customer risk:
To invest in the improvement actions that correct the non-quality aspects of the most sensitive, the first step is to build a balanced scorecard indicators are most representative. It is an indispensable asset to the achievement of a critical diagnosis and appropriate vis-à-vis business strategies (risk, marketing, sales ...) defined. While some indicators can be retained only for statistical purposes, the others must be action-oriented: this means they must be involved in a lens quality (which will result in the definition of alert thresholds or levels of expected results ...) and an action plan to achieve the objective. The role of each business management and / or SI concerned to arrive at the expected level of quality must be so in a charter previously defined: it is one of the key success factors of the process.

The importance counterparty risk Part-1

Despite the efforts made by financial institutions to ensure compliance with the Basel 2, the internal audits and supervisory bodies highlight gaps in devices management. Beyond the third scoring models in place to comply with regulations (Basel II and Solvency II in particular), financial institutions must continue efforts to ensure a sustainable level of quality control and so effectively and Reliable customer risk. If there are relatively simple and fast to improve data quality, only a comprehensive approach and equipped keeps this level over time and create a culture of quality in financial services, with the image of the industry.

The banking and financial regulation on the internal control of credit institutions and investment firms provides an outline of points to watch it should be integrated within the device management of counterparty risk. To ensure compliance with regulations and ensure the proper level of control internally, branches wish to have the core quality indicators ensuring the validity of the information system risk management, validating the defined risk strategy and organization established to cover the risk client. The only way to dispose of is to use information systems to provide a quantitative analysis, but the relevance of these indicators is based on the quality of the IS.

System-level information, the presence of duplicates, unreliable links or combination obsolescence of customer identification are some of examples of non-referential quality of the third most frequently cited. If they do not prevent the IF function, these problems can have a significant impact on end users and in particular the process of consolidating risks, commercial pilot, the fight against money laundering and grant decisions. Shares of reliability, often initiated by the trades and in consultation with the project owners, are intended to identify areas of non-quality, identify the causes and identify pragmatic ways to mitigate or delete.

The first actions are almost always in the form of manual corrections. These projects mobilize substantial charges to align the repository with the reality-duplication, enhancement or correction of signs, etc ... In addition, these actions if they can have a satisfactory short-term, must be renewed frequently to maintain quality and fight against the progressive drift.

Operative management - data quality

The importance of data quality in the operative management of counterparty risk.

Despite the efforts made by financial institutions to ensure compliance with the Basel 2, the internal audits and supervisory bodies highlight gaps in devices management customer risk.

Beyond the third scoring models in place to comply with regulations, financial institutions must continue efforts to ensure a sustainable level of quality control and so effectively and Reliable customer risk. If there are relatively simple and fast to improve data quality, only a comprehensive approach and equipped keeps this level over time and create a culture of quality in financial services, with the image of the industry.

The banking and financial regulation on the internal control of credit institutions and investment firms provides an outline of points to watch it should be integrated within the device management of counterparty risk.

To ensure compliance with regulations and ensure the proper level of control internally, branches wish to have the core quality indicators ensuring the validity of the information system risk management, validating the defined risk strategy and organization established to cover the risk client. The only way to dispose of is to use information systems to provide a quantitative analysis, but the relevance of these indicators is based on the quality of the IS.

System-level information, the presence of duplicates, unreliable links or combinations obsolescence of client identification are some examples of non-referential quality of the third most frequently cited. If they do not prevent the IF function, these problems can have a significant impact on end users and in particular the process of consolidating risks, commercial pilot, the fight against money laundering and grant decisions.