Reflections on OpRisk Management
First published:
ISBN: 9781782723493
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The Rogue’s Path
The Rogue’s Path
Introduction
Operational Risk in Four Letters
An Invisible Framework
Small is Beautiful in OpRisk Management
The Business Value of ORM
How to Minimise ‘People Risk’
The Missing Piece
Risk Appetite and Framework
From Russian Roulette to Overcautious Decision-making
The Importance of Preventive KRIs
How to Build Preventive Key Risk Indicators
Unlocking KRIs
Six Steps for Preventive KRIs
Have Your Cake and Eat It
Conduct, Not ‘Conduct Risk’
How to Manage Incentives
Is Reputation Risk Overstated?
What Regulators Want
Conduct & Culture
OpRisk Takes Forward Steps at OpRisk Europe 2014
Modern Scenario Analysis
The Rogue’s Path
Rogue Trading No Training: The Connections
What Brexit Teaches OpRisk
OpRisk Survey Shows the Insidious Effects of Political Risk
Discarding the AMA Could Become a Source of OpRisk
UCL Research Shows that SMA Reforms Introduces Capital Instability and Discourages Risk Management
Memo to Bank CEOs: Treat OpRisk with More Respect
Don’t Let the SMA Kill OpRisk Modelling
Many rogue-trading activities unfold according to the same mechanism: undetected unauthorised open positions, which are either fictitiously covered by fake trades, or are simply not included in the trading systems, turn bad, balloon to the point they cannot be hidden any more, leading to unacceptable losses. Tackling rogue trading must first take place in front offices, with managers being inflexible on traders exceeding their risk limits, regardless of the outcome of their bet.
Automatic capture of market positions integrated in a global monitoring system is the only efficient way to avoid errors and omissions in recording trades. Effective control coming from a real segregation of duties can only occur when middle- and back-office staff members are properly trained and fully aware of their role in the process and control chain.
In the fight against rogue trading, more regulation won’t immunise banks against further catastrophes. Proper incentives, comprehensive systems and financial training are the most effective answers to operational losses in trading activities, whether fraudulent or not.
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