2013 Operational Risk & Regulation Awards

- Alexander Campbell
- 15 Apr 2013

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Scroll down for reports on all the award winners

Dealing with the crisis has given way to dealing with regulation. Operational risk management is the most important determining factor in assessing a bank's stability, regulators such as the US comptroller of the currency now say – and billion-dollar operational risk losses underscore the damage that failure can do in this sphere.

Many of these losses, too, were the result of regulatory fines – in the face of ever more aggressive regulation, compliance has become as important a topic as operational risk management. There is no better way to induce panic than to impose a system that combines uncertain requirements with draconian punishments, but this is exactly where op risk managers now find themselves.

Our awards this year recognise achievement in this particularly uncomfortable area – and, for the first time, we are including not only operational risk practitioners, but also the service providers and software suppliers who support them.

Success with the Basel rules' advanced measurement approach (AMA) for operational risk capital measurement was a major success for 2012's Bank of the Year, UniCredit. Though the momentum towards AMA – originally seen as the logical end goal for all major banks under the Basel rules – has stalled somewhat, UniCredit has reported heartening results from its efforts to overhaul its own AMA model and processes and link them more closely to day-to-day business operations. And with many – some argue almost all – major losses having an operational risk component, even if they end up being classed as market or credit risk losses, the bank's decision to set up a permanent operational risk working group with input from various departments is also a welcome improvement.

Dealing with the vagaries of the Basel capital standards is the focus of 2012's Paper of the Year, ‘Estimating operational risk capital' by JD Opdyke and Alexander Cavallo, published in the Journal of Operational Risk's fall 2012 issue. The discovery that operational risk capital figures were highly volatile led the authors to investigate the commonly used maximum likelihood estimation (MLE) method and discover other flaws – they were not the first to cast doubt on MLE, but extended the analysis to the capital calculation stage, providing a much clearer view of the practical consequences of MLE's shortcomings.

Helping customers and clients keep up with regulatory change has paid off for other award winners as well. Morrison & Foerster, 2013's Law Firm of the Year, has become the go-to source for information and interpretation of the US Dodd-Frank Act. With many of the details of implementation still uncertain, the firm's focus has been on helping its customers comply as far as possible while avoiding blind alleys, and it has developed its expertise to cover non-US legislation such as the European market infrastructure regulations as well.

Our first fraud and financial crime software award goes to BAE Systems Detica, for software which, by sorting through the mountains of unstructured data produced by any financial sector company, aims to achieve great improvements in areas ranging from insurance fraud detection to sanctions evasion and the prevention of rogue trading activity. By vastly increasing the speed and scale of financial markets operations, the IT revolution has taken much of traditional banking activity out of the hands of human beings, and left human supervisors and risk managers struggling to keep up – it's logical that compliance and risk management, too, should increasingly be automated using software like Deticas NetReveal.

Spending on all areas of operational risk has risen, with compliance a particular priority for consultants as well: the winner of the consultancy award, Ernst & Young, is busier than ever dealing with customers' uncertainties about the shape of the operational risk landscape in years to come. Tracking the incidents when they occur and providing up-to-date risk measures is key to managing risks day to day, using software such as that provided by GRC award winner MetricStream. And practitioners also credit op risk software award winner Thomson Reuters with supporting a new cultural focus on risk rather than simply return.

2013 Operational Risk & Regulation Awards

Our awards this year recognise achievement in the area of regulatory compliance – and, for the first time, we are including not only operational risk practitioners, but also the service providers and software suppliers who support them

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